Strengthening the co-op movement (Opening)

Mr Deputy Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”

Introduction

Co-operative societies, also known as “co-ops”, are membership-based business entities that operate on the principles of self-help and mutual assistance to achieve common economic and social objectives.  At present, there are 85 credit and non-credit co-ops in Singapore.

 Credit co-ops provide thrift and loan services to its members, who typically come from the same workplace, industry or community. There are 24 credit co-ops serving 140,000 members. As at 31 December 2016, members’ deposits in credit co-ops amounted to $820 million, and loans to members amounted to $209 million.

There are also 61 non-credit co-ops spanning various sectors, including retail and social services. This includes the large-scale NTUC co-ops, which serve the general public, and moderate the cost of essential goods and services. There are also other smaller co-ops which serve specific communities, ranging from different professions, to ethnic or religious communities, and even schools.

The Co-operative Societies Act was last amended in 2008, to enhance the governance and accountability of co-ops in view of their increasing membership and more complex operating environments. We also introduced a risk-focused supervisory framework to accord more regulatory oversight of credit co-ops due to their deposit-taking function. Following the amendments, we implemented prudential requirements on credit co-ops, which included requirements on minimum liquidity and capital, as well as loan restrictions and investment limits.

Credit co-ops in general have since made good progress in meeting these requirements and improving their financial prudence. Social enterprises are also adopting the co-op model as they consider it to be an effective means to bring together like-minded individuals to address social needs. For example, the Runninghour Co-op, which promotes well-being and integration of persons with special needs through sports; as well as the Silver Caregivers Co-op, which aims to improve the quality of life of caregivers, and to build their capabilities.

 As part of our regular process, my Ministry has conducted policy reviews with the following two key objectives:

a) First, protect the members’ interests by strengthening co-ops’ competency and regulatory oversight. This is to ensure that risks are better managed, and members’ deposits are better protected.

b) Second, ensure that our legislation continues to support the operation and development of co-ops.

Proposed amendments

Sir, the Bill before the House seeks to implement the recommendations arising from our policy reviews, as well as following several rounds of consultations with the sector. We also sought feedback from the public. We are adopting three strategies to meet the two key objectives.

a) First, to strengthen the competency and governance standards of the people running co-ops;

b) Second, to enhance regulatory powers to enable swift intervention in distressed or errant co-ops, so as to better protect co-op members’ interests;

c) Third, to facilitate co-op operations, by updating or clarifying regulatory requirements.

Strengthening competency and governance standards

Allow me to elaborate on the first strategy, which is to uplift the competency and governance standards of co-op officers.

 Sir, the primary responsibility for the governance and oversight in a co-op rests on its elected Committee of Management or “COM”, as well as its key employees. Notwithstanding that many of the key officers in co-ops are volunteers, it is necessary that they possess the requisite competencies to manage their co-ops in a prudent, and sustainable manner. They are also required to implement adequate risk management policies and internal controls.

Training and qualification standards

To ensure that suitably qualified individuals oversee co-ops, the Bill allows the Minister to make Rules to prescribe mandatory qualification and training requirements for the COM members and key employees. The primary focus at this juncture is on credit co-ops, given that they receive members’ deposits and disburse loans.

The Registry of Co-operative Societies has designed a training programme to ensure that key officers are equipped with the necessary knowledge to discharge their duties. Except with the Registrar’s approval, an individual who fails to complete such training will be ineligible to be re-elected or co-opted into the COM.

Through subsidiary legislation, we will also issue minimum competency standards on some specified roles. The requirements take into consideration both work experience and academic qualifications, and will be tiered according to the size of the credit co-op. They will be categorised as either small, medium or large, depending on their total assets and membership size.

While the new requirements will kick in immediately upon effective date of the Rules for new hires, existing officers who are unable to meet the requirements will be given a transition period to undergo training and upgrade their skills. The Registry will guide and assist the credit co-ops in this journey of transformation and progress.

Appointment of individuals into the COM

Sir, currently co-ops elect their COM at the annual general meeting, and may co-opt individuals into the COM only when a vacancy arises. Furthermore, they can only co-opt individuals from their membership base. Some co-ops have given feedback that they are unable to find suitable individuals with the required competencies from among their members.

Hence to further enable co-ops to strengthen their COM, the Bill will allow co-ops to appoint up to two individuals into the COM even if there is no vacancy, and up to the next AGM. These individuals need not be members of the co-op. This will facilitate the induction of individuals with relevant skills and knowledge to strengthen the COM’s capabilities.

If a co-op is unable to find suitable candidates to fill the COM positions, especially to meet the required competencies, or should the Registrar deem necessary, the Bill also empowers the Registrar to appoint up to two individuals into the COM.

Enhancing regulatory powers

Mr Deputy Speaker, I will now move on to the second set of amendments aimed at enhancing the Registrar’s powers to better protect co-op members’ interests. These are intended primarily to facilitate swift intervention in weak, distressed or errant co-ops. Allow me to highlight the key amendments in this section.

Powers to deal with non-compliance with prudential requirements

The first relates to credit co-ops which fail to meet prudential requirements. The Bill enables the Registrar to impose a cap on such a co-op’s dividends to members, to ensure that most of its net surplus goes towards building up its institutional capital and strengthening its financial position.

However, if a credit co-op persistently fails to meet any of the prudential requirements, the credit co-op would be putting members’ deposits at risk. Hence, the Bill also empowers the Registrar to stop such errant credit co-ops from receiving any new deposits for such period as may be determined. If the credit co-op still fails to rectify its situation, the Registrar may as a last resort, cancel its registration as a credit co-op.

Enhanced powers for inspection, inquiry or examination

Sir, there may also be instances in which the Registrar has to inspect the books of a co-op, institute an inquiry, or conduct an examination. These may be necessary to discharge the Registrar’s duties under the Act, to investigate possible mismanagement, or on application of a co-op’s creditor. The Bill updates the Registrar’s powers in these areas to ensure necessary access to the co-op’s premises, documents, as well as individuals with the relevant information.

Further to this, offence provisions in the Act have also been broadened to include new offences such as the provision of false and misleading information to the Registrar, obstructing the Registrar’s duties or wilful falsification of records.

Registrar’s intervention when com not performing duties properly or to protect members’ interests

Sir, there may also be instances where the Registrar is required to intervene in a co-op if the COM is not performing its duties properly; if there has been misconduct or mismanagement; or if it is necessary to protect members’ interests or the co-op’s property.

The Bill ensures that the Registrar is equipped with the necessary powers to take adequate and swift intervention in such scenarios. Beyond current powers to suspend the activities of a co-op and remove one or more COM members, the Bill broadens the Registrar’s powers to, among other things, suspend a co-op officer for a period not exceeding 24 months; appoint a statutory adviser to advise the COM; or order the co-op to take such remedial action or refrain from doing any act, should there be a misconduct or mismanagement. The Bill also specifies that an individual who has been removed or suspended by the Registrar shall not be eligible to be a COM member of any co-op or a key employee of a credit co-op, except with the Registrar’s approval.

The powers described in this section will only be used as a last resort to protect the co-op or its members. In the case of a credit co-op for example, the Registrar’s intervention may be necessary to maintain members’ confidence, stabilise the co-op and prevent a run on deposits. In addition, these powers will be exercised after due process and with a channel of appeal to the Minister.

Power to deregister a co-op

After all means to save a co-op have been exhausted, it may prove necessary to wind up the co-op if members’ interests are at significant risk.

Currently, the Registrar may issue a winding up order after an inquiry or examination, and when the Registrar is of the opinion that a co-op ought to be wound up. The Act also empowers the Registrar to wind up a co-op should it fail to meet basic requirements such as the minimum number of members, or repeatedly fail to conduct an annual general meeting or submit audited financial statements. The Bill broadens the circumstances in which the Registrar can wind up a co-op, to include insolvency; inability to meet financial obligations or if it is no longer in the interest of its members for the co-op to continue its operations.

Facilitate co-op operations

Sir, this brings me to the third and final set of amendments, which aim to facilitate co-op operations. While we strengthen governance standards and enhance regulatory powers, we have also reviewed our legislation to ensure that it supports and facilitates the operations and development of co-ops.

Formation of co-ops and eligibility of members

At the Ministry of Culture, Community and Youth, we see the inherent value of the co-operative model in building social capital, and nurturing a more caring and resilient Singapore. Hence, we have reviewed the registration process and eligibility of membership in co-ops to make them more facilitative. For example, we have lowered the number of individuals required to form a co-op. The Act currently requires at least 10 applicants; the Bill reduces this number to 5. This would make it easier for Singaporeans to form co-ops and achieve social objectives.

There are also existing prohibitions on persons with disabilities, bankrupts or ex-offenders, from being members of co-ops. The Bill removes these outdated prohibitions to ensure a more inclusive co-op movement. We are also reducing the minimum age to become a COM member, from 21 to 18 years of age. This will especially help to facilitate the participation of tertiary students in joining a COM of co-ops.

Expanding sources of capital

On the issue of Capital, members’ shares in co-ops are redeemable in nature. The Bill expands co-ops’ sources of capital by introducing a new class of “Permanent Shares”. This would enable co-ops to further build their capital base or meet any applicable capital requirements. This class of shares may only be issued to Institutional Members, who are better placed to permanently lock in their funds as compared to individual members. The Permanent Shares may however be transferred to other Institutional Members or bought back by the issuing co-op.

Minimum record keeping period

To provide co-ops with more clarity on the keeping of records and documents, the bill introduces a 5-year retention period and specifies the types of documents that must be retained.

Adequate disclosure of information to members

Sir, the authority of a co-op is vested in a general meeting of its members. Hence, as owners of co-ops, members are expected to play an active role at the annual general meeting, and to hold their elected officials accountable. In order to ensure that members are adequately informed of the co-op’s affairs, the Bill specifies that the documents that must be made available to members prior to the AGM include the Audited Financial Statements and the Annual Report. Further to this, the Bill also stipulates that the Annual Report must be prepared in such format as may be prescribed by the Registrar to ensure adequate disclosure and transparency to its members.

Other amendments

The Bill also introduces other amendments to make technical edits, or to update or clarify administrative processes and timelines. These include for example, the period by which a co-op shall inform the Registrar and its creditors of a change in its address, or in its officers’ particulars.

Conclusion

Sir, co-ops have a long history of over 90 years in Singapore. They have contributed in many ways, big and small, to a stronger social fabric by meeting different social and economic needs.

This Bill today reflects our balanced approach towards the sector. On one hand, we seek to strengthen our regulatory oversight of credit co-ops in view of their fiduciary duty over members’ deposits. We also seek to enhance regulatory powers to enable us to better protect members’ interests especially in the case of distressed or errant co-ops.

On the other hand, we acknowledge that there is room for co-ops to grow in the social services sector. Co-ops are an effective ground-up structure for individuals to form a business to address needs in society, or to champion causes they support. Further to our proposed amendments in this Bill, we will continue to review our administrative processes to help facilitate the operations and development of co-ops.

Mr Deputy Speaker, Sir, I beg to move.