Financial regulators vandalise co-ops

The sad tale of financial regulators is the same sad tale of regulators everywhere. There is an inevitable, even biblical, tendency for them to strain most enthusiastically at gnats and miss camels. To seek energetically the mote and to miss the beam altogether.

That’s what I mean by biblical; it’s just like a parable. They have an unerring instinct for the trivial while missing the bigger picture entirely – especially when it is a trivial matter that they don’t fully understand. Or when it is an important innovation that has emerged from outside the narrow financial world where they came from.

And so it was that Labour’s Financial Services Authority managed to prevent all but one banking start-up from getting a licence, while entirely missing the rising threat to the entire banking system.

So they were shut down and replaced by the coalition’s Financial Conduct Authority. And now, guess what, they are busily trying to frustrate the efforts of the emerging retail and energy mutuals – because, apparently, they don’t really understand them.

Never mind the burgeoning threat from derivatives and the continuing reliance on debt. No, somebody is pushing forward the boundaries of what might be possible at a local level, so the regulators get nervous.

It is once again a sad and horribly familiar story.

Community share issues have been an important innovation for keeping the benefits of investment locally and providing support for renewable and local shops that could not otherwise exist.

They have quadrupled in size over the past two years. That is why the coalition legislated to simplify the regulation.

But once the FCA got hold of this, they decided to go in the other direction. In the summer, they stopped approving applications for community energy share options.  Now they are proposing to reinterpret co-ops on an archaic basis as charitable or philanthropic bodies.

A strict reading of the FCA’s definition appears to exclude the UK’s consumer retail co-operatives, which are the foundations of the UK co-operative movement and have a combined turnover of £16.6bn.

They also want to limit the returns people can earn from investing in mutual energy mutuals to the same as they could get in a savings account – which, of course, will undermine the whole thing.

This is a quite extraordinary backward step which will potentially torpedo one of the few innovative formats for raising money locally – but people do need to be able to get a reasonable return, if such a return is possible.

This tussle has not yet emerged as a political issue, and I hope it can be sorted out before then. But regulators need to be able to do their job in a way that does not throttle innovations at birth.

Especially innovations which can provide means for neighbourhoods to look after their own needs more effectively, without falling back on dependence on central government.

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