MCYS SPEECH NO: 50/2008

DATE OF ISSUE: 16/09/2008

SPEECH BY MINISTER OF STATE FOR COMMUNITY DEVELOPMENT,

YOUTH AND SPORTS MRS YU-FOO YEE SHOON, FOR THE SECOND
READING OF THE CO-OPERATIVE SOCIEITIES (AMENDMENT) BILL,
ON 16 SEPTEMBER 2008

CO-OPERATIVE SOCIETIES (AMENDMENT) BILL

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

Background
2 The Co-operatives, or co-ops, of the early days were mostly formed by
members with close affiliations to one another. For example, the earliest co-ops
in Singapore were established in the 1920s as thrift and loan societies where
groups of public sector employees came together to help their members save
and take out loans when in need. These co-ops were one of the earliest
community self-help organizations in Singapore.

3 The co-op sector has since grown and now serves many aspects of our
economy and society. Today, there are 87 registered co-ops. 41 co-ops provide
thrift and loan services and they are known as “credit co-ops”. The largest co-
ops, such as NTUC Fairprice and NTUC Income, are household names. Total
co-op individual membership is now about 1.7 million.

Co-op role and relevance

4 A co-op is more than just a business entity. It is a business with a social
cause. A co-op pursues financial viability not as an end in itself but to serve its
members and its social cause. The House will be familiar with the social role that
the NTUC co-operatives play in moderating the prices of food, insurance, dental
and medical care, childcare and eldercare. Less familiar perhaps but still
relevant are the many ways in which various other co-ops serve their members

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and contribute to our community. For instance, ISCOS (the Industrial Services
Co-operative Society) helps ex-offenders reintegrate into the community. Many
school co-ops contribute to their schools’ welfare funds. Clearly, co-ops play an
important role in our society.

Need for legislative change

5 Co-ops are regulated through the Co-operative Societies Act and the Co-
operative Societies Rules. This piece of legislation has been largely unchanged
since the last major amendment in 1980.

6 Co-op legislation needs to be updated in view of the larger membership,

and the more sophisticated and competitive business environment that they
operate in. In the past, most co-ops were small, and depended on the mutual
trust and peer pressure among members who usually knew each other. Today,
many co-ops have enlarged their memberships significantly. Some of the largest
co-ops have more than 400,000 members. The ability for members to watch out
for one another can no longer be assumed. Of particular concern are the credit
co-ops. These co-ops take in deposits from members and give out loans,
functioning like finance companies. We need to ensure that such co-ops have
higher levels of prudence, and put in place the necessary systems for institutional
self-regulation.

7 Many of the early co-ops were not run by full-time professionals. To

ensure proper governance of the co-ops, the Act previously required certain
business decisions to be referred to the Registrar of Co-operatives. For
example, co-ops are required to seek the Registrar’s permission to purchase
property. The law even prescribes for the Registrar to set limits on the amount of
honoraria that can be paid to members of the committee of management. Today,
these provisions sound archaic. Many of these decisions should be made by the
co-op committee of management, which is the equivalent of the board of
directors of companies. Some co-ops have complained that the law is too

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restrictive, especially when they compete with companies as the Companies Act
does not have these restrictions. As a result, co-ops are not able to respond fast
enough in today’s rapidly changing business environment.

8 Hence, I am introducing the Co-operative Societies (Amendment) Bill to

update co-op legislation and make it more relevant to today’s environment. The
changes in legislation will create a more robust co-op movement and increase
the confidence of members and the public in co-ops.

Guiding principles
9 In developing the provisions of the Bill, we were guided by the following
principles:

i) First, the co-op regulatory framework should help co-ops operate on a

level playing field with other entities that operate similar businesses or
fulfill similar roles. That being said, some statutory recognition should be
given to co-ops for their social and community roles.

ii) Second, there should be risk-focused supervision where more

regulatory attention is concentrated on co-ops with higher risk profiles.

iii) Third, a disclosure-based regime is preferred over the existing

prescriptive approach where regulatory approval is required for a range of
items. A disclosure-based approach allows members and other
stakeholders of co-ops to make more informed decisions concerning co-
ops. The primary responsibility for the co-op lies with the co-op committee
of management and its management.

iv) Fourth, in the spirit of self-help and self-reliance, the co-op sector
should take the lead to raise the level of accountability and governance

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 among co-ops. The government can provide the necessary support but
the sector should level up through self-regulation as far as possible.

10 I would now like to draw the attention of the House to the main features of
the Bill.

Key features of the Bill

11 The Bill will bring the level of co-op accountability in line with that of other
sectors. The Bill clearly spells out the duties and accountability of co-op board
members. Members of the co-op committee of management will be required to
act in good faith, use information for proper purposes and declare their interests.
As with companies and societies, co-ops will have to comply with accounting
standards formulated by the Accounting Standards Council. Individuals who
have been convicted of offences involving fraud or dishonesty will be disqualified
from serving on the co-op board.

12 In line with the risk-based regulatory approach, the Act will be amended to
subject credit co-ops to more stringent registration criteria compared to non-
credit co-ops. Under the new regulatory regime, credit co-ops will be required to
have clearly-defined membership criteria. As credit co-ops are not subject to the
same stringent regulatory requirements generally applicable to financial
institutions, they should not open their membership to the general public. Credit
co-ops should confine their membership to those who share a pre-existing
affiliation with each other. For example, credit co-op members could have a
common employer, share membership in an association or they could belong to
the same community. To minimize the disruption to credit co-ops, the Bill allows
the co-ops to retain existing credit co-op members, even if they are outside the
co-op’s defined membership affiliation.

13 Credit co-ops will also be subjected to higher levels of governance at

board and management levels. Credit co-ops will be required to have Audit

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Committees which will review the internal controls and audit plan of the credit
society. Individuals convicted of offences involving fraud and dishonesty will be
disqualified from serving as board members or key employees of credit co-ops.

14 As credit co-ops should not open up their services to the general public,
only members and their immediate families can make deposits in credit co-ops.
Credit co-ops can give out loans only to their employees, members and their
immediate families.

15 Credit co-ops should concentrate on their core thrift and loan operations
and not use depositor funds to establish other lines of business. Existing credit
co-ops with other lines of business will be allowed to retain their non-core
businesses. However, they will need to seek their members’ approval to use
depositor funds for these other businesses.

16 The Bill will remove some outdated prescriptive requirements of the

existing co-op legislation and provide co-ops more flexibility to manage their
operations and compete in the marketplace. Co-op leaders should be
empowered to take decisions for their co-ops without being encumbered by
unnecessary rules. With the liberalizations, co-ops will no longer need the
Registrar’s approval for investments in property and other co-ops. Other
liberalization measures include removing the need for a co-op to set aside a
portion of its surpluses as a statutory reserve fund in its balance sheet. As
separate prudential requirements for credit co-ops will be prescribed under the
Bill, it is not necessary for the law to require that reserve funds be kept for all co-
ops. Further, the Registrar will no longer set honoraria limits for co-ops. The
payment of honoraria, allowances and benefits to a member of the co-op
committee of management is to be approved at a general meeting of the co-op.

17 To facilitate the registration of more co-ops, the Bill will allow the Registrar
to accept declarations from applicants that they have complied with the

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registration requirements. This will free up the Registrar from having to review
each application in great detail, and is similar to the registration process for
companies and societies. We plan to allow such declarations for non-credit co-op
applications.

18 Through the Bill, the offence provisions will be updated to more accurately
reflect the severity and level of offences. We have benchmarked against
comparable provisions in the Companies Act, Banking Act and other legislation.
The maximum fine will be raised to $50,000 for the more serious offences, such
as providing financial services without being registered as a credit society. The
maximum jail term will be 5 years for fraudulently inducing persons to invest or
deposit money in a co-op. This is in line with the Companies Act. The regulator
will have a range of options including the composition of offences to more
adequately deal with co-op non-compliance.

Transitional arrangements
19 The Bill makes provision for co-ops to transition into the new legislative
regime. Co-ops have at least one year from the commencement of the amended
Act to make the necessary changes to their by-laws. Existing credit co-ops will
be deemed as registered credit co-ops for one year during which they will need
to apply to the Registrar to continue providing financial services. They will also
use this one year to meet with regulatory provisions that apply specifically to
them, such as the establishment of an Audit Committee. These transitional
arrangements allow credit co-ops to build up their capabilities to meet the
enhanced capital and other prudential requirements.

Public and industry consultation

20 Sir, we have consulted the key stakeholders of the co-op movement, all of
the co-ops and the public to arrive at the various legislative changes introduced
in the Bill. The Bill is based on the recommendations of an interagency team that
reviewed co-op regulation.

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21 The apex co-op body, the Singapore National Co-operative Federation
(SNCF) supports the guiding principles applied to develop the recommendations
for the co-op legislation review. Co-ops generally agree that it is not sustainable
for the Registrar to continue to make business decisions, such as the maximum
honoraria to be paid, on behalf of co-ops. Going forward, co-op leaders should
have greater autonomy in managing co-ops and co-op members should take a
deeper interest in the running of their co-ops.

22 The co-ops that are most affected will be credit co-ops, as they will need
to adjust to prudential and other regulatory requirements consistent with their
greater custodial responsibility. While there will be some adjustments required of
co-ops, the co-op movement understands that these legislative changes are
necessary for the long term development of co-ops in Singapore.

23 The SNCF has already implemented various initiatives to raise the

governance and professional capabilities of co-ops. My Ministry will continue to
work with SNCF to put in place measures to facilitate the transition of co-ops to
the new regulatory framework. We are also promoting the formation of more co-
ops, particularly those that benefit disadvantaged groups in our community.

Conclusion
24 Mr Speaker, Sir, co-ops have played an integral part in the growth and
development of Singapore. Co-ops are part of the self-help movement where
groups of individuals come together as corporate entities to uplift themselves and
the broader community. The Bill will introduce a risk-focused regulatory
framework that gives co-ops greater operating flexibility while elevating their
levels of governance and accountability. It will facilitate the further development
of the co-op sector in Singapore.

25 Mr Speaker, Sir, I beg to move.