07 May 2025
5 min
Mutual organisations are defined as those owned by their members rather than by shareholders. Examples include building societies, credit unions, co-operatives, companies limited by guarantee and friendly societies.
Friendly societies are governed by specific legislation, the Friendly Societies Acts 1974 and 1992 (“the Acts”). This is separate to the Companies Act 2006 which governs mutuals (and shareholder owned firms) more broadly.
There is a widespread view from the mutual sector that the existing friendly society legislation is outdated and has therefore hampered growth and development in the sector. The Labour government’s manifesto pledge to double the size of the mutual sector has also brought the issue into the spotlight.
HM Treasury has asked the Law Commission of England and Wales to review the Acts and consider whether reform is necessary. The Commission has launched a public consultation[1] on provisional proposals to modernise the law governing friendly societies. The consultation recognises that friendly society law “has not kept pace” with developments in related areas, with the last major update over 30 years ago. The consultation covers a broad range of technical and strategic topics, and we consider some of the key proposals in this blog.
Perhaps the most significant proposal set out is to streamline the transfer of business engagements process for friendly societies. The consultation recognises that the current process is “complicated and expensive” and sets out proposals to address these issues, including:
The simplified amalgamation process proposed would significantly reduce the cost involved and may allow smaller friendly societies to come together to benefit from economies of scale.
Under current legislation, friendly societies can take on loans but not issue shares, while companies can raise capital through both debt and equity. The 2015 Mutuals’ Deferred Shares Act allowed HM Treasury to set regulations to allow the issuance of mutual deferred shares, a new capital instrument for mutuals. Following consultation with industry no regulations were developed, as HM Treasury found it could not design regulations that satisfied industry requirements to use mutual deferred shares. The Law Commission invites views on whether there is still a demand for a mechanism for friendly societies to raise equity capital, and what the capital raised would be used for.
Gone-aways arise when firms lose contact with policyholders due to e.g. changing address or death without the firm being informed. Current legislation includes requirements for friendly societies to contact all members with regard to certain activities, e.g. notice of meetings and making certain changes to the business, with no provision for gone-away members. Gone-away policies can therefore be extremely disruptive to timescales for friendly societies looking to transfer engagements, convert into a company or to exit the market, and enhanced tracing can incur significant additional costs with no guarantee of success. The proposal to qualify notification requirements, for example requiring friendly societies to take “reasonable steps” to contact all members, or to follow prescribed steps, offers a practical solution to this problem.
Under existing legislation, if a friendly society wants to communicate electronically with members then the members must explicitly agree to this (“opt-in”), while under company law, firms can inform shareholders they will be contacted electronically unless they respond to opt-out within a defined period of time. Aligning the legislation for friendly societies with that applied to proprietary insurers may create significant operational efficiencies, and in the longer term may also impact gone-away rates. The consultation also proposes expressly permitting electronic registers of members names and addresses, which are less likely to be lost or damaged than physical records.
Asset locking is a legal tool which ensures an organisation’s assets can only be used for prescribed purposes. The Co-operatives, Mutuals and Friendly Societies Act 2023 set out a framework for creating an asset lock[2], which could be used to discourage friendly societies from demutualising. The consultation invites views on the potential benefits and disadvantages of this for friendly societies, noting there are significant practical challenges to implementation.
The Law Commission’s consultation has been welcomed by industry bodies such as the Association of Financial Mutuals[3]. Modernising the law governing friendly societies should allow these firms to ensure their continuing sustainability and to compete more widely with other insurers, ultimately resulting in more customer choice and a more dynamic insurance market. The consultation is open until 11 June 2025.
This blog is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Please read our Terms of Use.
[1] Friendly societies – Law Commission
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