CO-OPERATIVE SOCIETIES (AMENDMENT) BILL

CO-OPERATIVE SOCIETIES (AMENDMENT) BILL: Order for Second Reading read.

The Minister of State for Community Development, Youth and Sports (Mrs Yu-Foo Yee Shoon): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

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 organisations in Singapore.

The co-op sector has since grown and now serves many aspects of our economy and society. Today, there are 87 registered co-ops. Forty-one co-ops provide thrift and loan services and they

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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

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 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 and contribute to our community. For instance, the Industrial Services Co-operative Society (ISCOS) helps ex-offenders re-integrate 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

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.

The 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

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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.

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 outdated. 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 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.

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

Mr Speaker, Sir, in developing the provisions of the Bill, we were guided by the following principles:

First, the co-op regulatory framework should help co-ops operate on a level playing field with other entities that

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operate similar businesses or fulfil similar roles. That being said, some statutory recognition should be given to co-ops for their social and community roles.

Second, there should be risk-focused supervision where more regulatory attention is concentrated on co-ops with higher risk profiles.

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.

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

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

Key features of the Bill

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

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be disqualified from serving on the co-op board.

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 minimise 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.

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 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.

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.

Credit co-ops should concentrate on their core thrift and loan operations and not use depositor funds to establish other

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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.

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 liberalisation, co-ops will no longer need the Registrar’s approval for investments in property and other co-ops. Other liberalisation 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.

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

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.

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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 five 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

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

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 inter-agency team that reviewed co-op regulation.

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

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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.

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 responsibilities. 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.

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.

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.

Sir, I beg to move.

Question proposed.

4.35 pm

Mr Sin Boon Ann (Tampines): Sir, co-operative societies are not new. Its movement began modestly towards the

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end of the 18th century and has since then grown into a myriad of business entities across the globe covering various interests such as consumers, producers, housing, insurance, thrift and loans, amongst others. Compared to other business entities, the early pioneers of cooperatives believed that certain cornerstone values, known as the Rochdale principles, must remain rooted in the organisation. These are inter alia an open and democratic membership, income distribution on the basis of refund on patronage, political and religious neutrality, exchange of goods and services at market prices, and limited returns on equity.

As a business platform, co-operative societies allow individuals to come together through the pooling of their resources to promote common interest. To a large extent, co-operatives have been fairly successful in many societies where there are well defined business models and proper management. This is perhaps most evident at home when one looks at NTUC Income and FairPrice. Over the years, NTUC FairPrice has become the face of a successful co-operative that continues to lead the people’s fight against inflation, and a shining example of how the community can come together to deal with their own needs in an independent manner.

Indeed, the co-operative movement has come to represent the values of social self-help and provides an excellent platform for social enterprises and initiatives.

While the ideals of a co-operative movement may be noble, there is no guarantee that a co-operative will always be successful or that it will serve the needs of its members. The legislation governing co-operative societies only provides the framework. Much, and I

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have alluded to this earlier, will have to depend on the viability of the business and, of course, the quality of management in relation to running the business.

I welcome the Bill as it seeks to streamline the current legislation to the extent that it tightens the Registrar’s control on credit societies, and strengthens the framework of co-operative societies by introducing, among others, the requirement of having an audit committee comprising independent members to perform an oversight function on the business of the society. Broadly, the present amendment seeks to bring the present Act in line with the governance framework of the Companies Act and the amendments that one would say are long overdue.

However, although I welcome the changes that the present Bill introduces, there are a number of observations that I would like to make.

First, and as a general principle, the Companies Act and co-operative societies presuppose that there is an underpinning of democracy and accountability to the shareholders or members of the society. This explains why under the Companies Act and the present Amendment Bill, accounts have to be laid before the general body of members and certain expenses such as officers' fees or honorarium have to be approved at general meetings. The principle is based on accountability and members vote to elect the people they want to lead them.

Unfortunately, the reality on the ground is far from ideal. Those who attend shareholder meetings will attest to the fact that there is a great deal of shareholder apathy generally; and I suspect that this is the case with co-operative societies as well. Usually, the bulk of the shareholders or members do not attend these meetings; the ones who do are often associated with the

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management or controlling shareholders; with the result that there is often a rubber stamping of the recommendations of the management. What it means is that management or the controlling member may wield very tight control on the company or society. The question for co-operative societies really is: can members be counted on to provide the supervision that the current framework envisages?

Secondly, even though the present Bill seeks to mirror the provisions of the Companies Act, it does not go far enough to address the present weakness of the current framework. I note that with the amendment to the present Act, members of the management committee are required to act honestly and with reasonable diligence. The big question here is, as with the Companies Act, what is the standard of honesty and reasonable diligence of the members? Is it enough if a member of the management committee were to merely declare his interest in the contract with the society and proceeds to transact in the contract? In the case of listed companies, the Audit Committee has oversight of such contracts as interested person transactions, especially between those of the directors and the company they look after, and this comes within the scrutiny of the Audit Committee. In the present case, I note that the Audit Committee provided for in the Bill does not have to look at interested party transactions. I would like to ask the Minister why this has been left out of the scope of responsibility of the committee. Why should the management committee also not include the nomination committee or the remuneration committee as is the case of listed companies? Presently, the remuneration committees of listed companies determine and recommend the remuneration of directors and senior executives of the company to the shareholders. In the present case, I note that the amendment gives the society the freedom to determine the remuneration packages of the management committee

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members without the oversight of the Registrar before. With this arrangement, I do appreciate the flexibility. However, I am not sure if, in so doing, we may be creating vulnerability here, particularly if members' control is weak.

Further, if the intention with the amendment is to bring the Act in line with the Companies Act, then there is potentially an important omission in the Bill. Currently, under the Companies Act, there is a general prohibition against loans to directors or financial assistance to directors, directly or indirectly, in acquiring shares or units of shares in the company. Presently, there does not appear to be any specific prohibition against these acts in the Bill. Does it mean that it is acceptable for the society to lend management committee members money? Or that it is acceptable for the management committee member to borrow money from the society to acquire further voting rights of up to 20% of the total voting rights in the society? It would be inconceivable that the officers of the society can do all of those things that are currently proscribed by the Companies Act.

Thirdly, co-operative societies by its very nature contemplate a sizeable membership. This is particularly true with respect to co-operatives that require substantial capital to start a business; particularly in the context of a credit society. I do appreciate that the present Bill seeks to tighten control over such societies. Nonetheless, credit societies are allowed to raise capital either by way of fresh subscription or deposits from its members amongst other means. If the credit society were to go out and aggressively sign up members of the public for this purpose, how robust will the office of the Registrar be in supervising the business activities of these unions? Should the MAS be involved at some stage? How can we be sure that the interests of the members will

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be sufficiently safeguarded by the current legislation? Besides, I am not sure if the very business model of co-operatives is anti-competitive. Would there be issues under our Competition Act with regard to issues of competition?

Finally, in some ways, the present Bill does not go far enough to address some of the other issues in the current Act. I shall just mention two.

Currently, the Act envisages that minors as young as those who are 12 years of age as in the case of school co-operatives may join as members. The present Bill has lowered the age of membership of the non-school co-operatives to 16. It does seem rather odd to me that what the law deems as a minor and thus not of sufficient age to enter into legally binding contracts is now able to accept minors joining co-operatives as full voting members who can vote potentially and take part in management as a key member within the society. To the extent that members are now allowed to join co-operatives because of certain policy consideration, then I think that the law should perhaps differentiate and treat them differently from the adults under the current legislation.

Additionally, I note that section 87 of the Act presently provides that no civil court shall have any jurisdiction in respect of a matter concerned with the dissolution of a society and no appeal shall lie to a civil court from an order of the liquidator.

Sir, legislation taking away the right of the courts to review the acts of the state or any individual for that matter should be sparingly used. In this case, I cannot see why the court should not be in a position to review the decision of the liquidator with respect to the dissolution of the society. On the contrary, such provisions

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limit access of the aggrieved to justice, and weakens the rights of society, not least of which are the members. I do not see why in this current age we need to keep such a provision in the Act. I would urge the Government to consider repealing it.

With that, Sir, I support the Amendment Bill.

4.44 pm

Mr Seah Kian Peng (Marine Parade): Mr Speaker, Sir, thank you, for allowing me to speak on this Bill.

First, I need to declare my interest as the Chairman of the Singapore National Co-operatives Federation (SNCF), and I also work for NTUC FairPrice Co-operative Ltd.

I applaud the proposed amendments. It has been some 23 years since the Co-operative Societies Act was first passed in 1985. Having these measures in place will reinforce corporate governance and accountability. It would strengthen the co-operative movement and improve public confidence towards co-operatives.

Co-operatives are governed by laws.

But, day to day, we need a strong culture of self-regulation. SNCF has, in recent years, operated a slew of initiatives to strengthen awareness of corporate governance way before legislation. In 2001, we promoted the idea of co-operative having independent directors. A year later, we renewed our strategic direction. One of the key areas was to promote and enhance Co-operative Governance among co-operatives. In 2004, we launched the Co-operative Governance course, to equip board members and senior managers of co-operatives with a clear understanding of their roles and responsibilities in managing their co-operatives and the key elements of good corporate governance. Some 18

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such courses have been conducted, training about 450 co-operative leaders from 53 co-operatives. We continue to collaborate with the Ministry of Community Development, Youth and Sports in carrying out operational audits and follow ups.

More importantly, in 2006, we launched the Code of Governance for Co-operatives at the Annual Co-operative Leaders' Conference. The Code encapsulates the best governance practices of the industry and aims to help co-operative boards and management better fulfil their roles. It is meant to assist all co-operatives (including non-affiliates of SNCF) in examining and raising their governance standards. It aims to complement the minimum standards set forth in co-operative legislation.

In this regard, I wish to assure my colleague, Mr Sin Boon Ann, that many of the bigger co-operatives, especially those in the NTUC group, all have nomination committees, remuneration committees, on top of Audit Committees.

However, Mr Speaker, Sir, I need to emphasise that we must strike a balance between ensuring safeguards and being practical, so that we do not inadvertently render the co-operatives uncompetitive, given the small scale in operations for some of them. This is the approach that is advocated by SNCF.

Since early last year, MCYS has engaged SNCF and its affiliates in a few dialogue sessions to obtain our inputs. Some of them have been incorporated in the proposed amendments in this Bill, but some remain unanswered. So I have a few queries and suggestions.

(1) On section 9, Registration, I propose that, as part of this process, the applicant should also attach their business plan. This is not to suggest that the regulator must assess the viability of the

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business plan but rather that the regulator's role is to ensure that such a plan exists and provides some safeguards for members who have invested in the co-operative.

(2) On section 16B, Control of Credit Societies, I seek clarifications on:

(i) The interpretation of "financial service";

(ii) Whether institutions that are regulated under the Banking and Finance Companies Act are subject to similar requirements; and

(iii) The Regulator's benchmark when authorising applications for new financial services.

(3) On section 60, Eligibility for Membership of Committee of Management (CoM) or to be Key Employee of Credit Society, I want to:

(i) ask whether there should be a stipulation to restrict either the number of non-members on the Committee, because the Act is silent on this matter. In principle, we support having non-members on the Committee of Management. As it is, NTUC co-operatives are a model where they consciously appoint independent directors to their boards so as to strengthen the boardroom with expertise and experience. On the other side of the coin, it should also be pointed out that we are already seeing the Committee of Management of some school co-operatives, comprising non-members, such as parents, instead of teacher advisers, and student co-operators. Therefore, if left unchecked, it could result in the admission of more of such non-members in the future.

(ii) I also appeal for a minimum period of debarment instead of indefinitely for persons convicted of fraud or dishonesty to be eligible to become members of the

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Committee of Management or Key Employees of the credit society. This appeal is consistent with and in support of the Yellow Ribbon project, that everyone deserves a second chance. The onus will be on the respective board or Committee of Management to conduct their own assessment whether these people should be appointed to their boards or Committee of Management.

Next, on section 95, Powers of Minister to make Rules, I would like to seek clarifications on the authority that is vested in SNCF to carry out its responsibilities as both an Apex organisation and a reporting body to the Registrar, ie, specifically, should such an authority be extended to non-affiliates of the Apex organisation?

With the onset of new legislation, section 76 of the Banking Act and section 53 of the Finance Companies Act will be amended to remove credit co-operatives from being granted exemptions they have been enjoying until now, except that they will not be required to apply for a licence. Bearing in mind that credit co-operatives will be subject to certain restrictions, my question is: would it be fair for them to be subject to the same requirements of other financial institutions when they are not competing on a level playing field?

Sir, the key thrust of these changes, as the Minister of State has elaborated, is a tightening of the regulation of credit co-operatives.

First, there is the removal from exemptions of sections 73 and 53 of the Banking Act. Can the Minister elaborate on the impact on co-operatives?

Second, on the restriction of membership of credit co-operatives, the Act spells out clear and stringent guidelines on the admission criteria of

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membership for credit co-operatives. This, in effect, puts a cap on the ability of credit co-operatives to grow, let alone sustain their current base.

Third, on the restrictions on operating branches and ATMs, the Act is silent on whether credit co-operatives will be allowed to operate branches and ATMs. I understand that the Registrar's approval is required for the setting up of branches and ATMs. I believe that MCYS's rationale is that the recommendation ensures that there is no proliferation of branches and ATMs by credit co-operatives. But if the consequential amendments to the Banking Act (Cap 19) and Finance Companies Act (Cap 108) are passed, would that not mean that credit co-operatives would now be required to obtain the necessary banking licences to operate branches, as required under section 12 of the Banking Act (Cap 19)? Also, with the passing of the consequential amendments to these two Acts, the restriction to operate branches and ATMs will certainly create an uneven playing field for the credit co-operatives.

Fourth, on the restriction on advertising, the Act is silent on whether credit co-operatives will be allowed to advertise their products and services. Given that the Act is silent, does it mean that credit co-operatives will be allowed to engage in all forms of advertising? If restrictions are subsequently placed to restrict them from advertising, again it creates an uneven playing field for the credit co-operatives. And if we raise the bar on the regulation of credit co-operatives to standards that are on par with other financial institutions, what is the rationale for imposing the additional, more stringent membership criteria? Can the Minister explain?

Jeffrey Sachs, a renowned development economist, had in his book, Common Wealth – Economics for a Crowded Planet , asserted that market mechanisms and government policies

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alone cannot sustain economic growth. And that public, private and the not-for-profit sectors need to work co-operatively to address social concerns and achieve sustainable outcomes. Co-operatives are indeed well placed to play a key role in achieving sustainable outcomes for the local and broader community. Co-operatives give members a sense of ownership in the organisation while serving their own economic and other needs. It also helps build social networks among members and closer links between the co-operative and the broader community.

When the International Co-operatives Alliance held its global general assembly here in Singapore in October last year, Minister Vivian Balakrishnan at the Opening Ceremony said:

"Co-operatives have a distinct and valuable role to play in helping create a strong, sustainable, prosperous and inclusive society".

The standing of Singapore co-operatives is held in high regard by the co-operative fraternity throughout the world. The social impact created by some of the co-operatives here has brought immense benefits, both economically and socially, to all its members and the community at large.

Sir, as we embark on this round of legislative changes, I see it as a step towards the anchoring and strengthening of the role of the co-operative movement in Singapore. Having these measures in place will reinforce corporate governance and accountability. They will certainly improve public confidence towards co-operatives.

I hope the Ministry can consider my comments and suggestions. I also ask that the regulators adopt a light approach by extending some time, flexibility and help, if necessary, to co-operatives, especially the smaller ones, to adjust to

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these new changes. On our part, the Singapore National Co-operatives Federation will do whatever possible within its means to help all co-operatives make these adjustments.

Sir, I support the Bill.

4.55 pm

Mdm Halimah Yacob (Jurong): Mr Speaker, Sir, I rise in support of this Bill.

The last major amendments to the Co-operative Societies Act were done in 1980. Since then, there have been many new developments that have an impact on co-operatives. These amendments are, therefore, not only timely but also necessary.

The first co-operative was registered in Singapore in 1925. Singapore has one of the more successful examples of co-operation in the world today. Indeed, with 1.7 million individual members, their impact and significance on the lives of ordinary Singaporeans cannot be under-estimated. The NTUC co-operatives became part of this movement in the early 70s, soon after the milestone 1969 Modernisation Seminar was held. Union leaders then decided to form co-operatives as a way of advancing our workers' welfare, particularly for our low-income workers. Since then, the NTUC co-operatives have helped in a major way to advance the agenda of co-operation in Singapore. The reach of the NTUC co-operatives today has gone far beyond that of its members, as evidenced by recent events. NTUC FairPrice, one of NTUC's co-operatives, plays an active role in helping Singaporeans deal with inflation. As we move ahead, co-operatives will continue to play a major role in helping people to improve their lives. It provides a vehicle for people to collectively combine their individual resources to benefit from economies of scale. But to do so, co-operatives cannot remain static

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but have to progress and expand its role to meet the needs of its members and to benefit from our economic growth.

Sir, although co-operatives are fundamentally social enterprises with a strong mission to advance the interests of its members, to survive and sustain its operations, every co-operative has to operate on the basis of modern business principles. One key requirement of good modern business practices is good corporate governance. Hence, the key thrust of these amendments, which is to help co-operatives raise the level of their accountability and governance, as well as to set a more risk-focused co-operative regulatory regime, particularly for the credit co-operatives, is a move in the right direction. It is necessary to maintain a right balance. If the law is too stringent, then it would kill the initiative for credit co-operatives which are essentially akin to the poor man's bank, saving many workers from the clutches of loan sharks, as the banks or financial companies are not interested in the small borrowers. But, if it is too liberal, then it may run the risk of exposing small depositors in these credit co-operatives to unwarranted losses.

Sir, there are a number of clarifications that I wish to seek from the Minister of State over this Bill.

First, could the Minister of State clarify whether there are measures in place to assist and address the needs of the smaller, less established co-operatives to grow and develop so that they can be more effective in taking care of their members' needs? There is a great disparity today in terms of the growth and development of co-operatives in Singapore and smaller co-operatives could benefit from a sustained programme that they can rely on for expertise, skills, marketing or any other form of help. Due to their

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small size, they may not be able to have access to such capabilities.

Second, could the Minister of State update this House on the number of new co-operatives that have been established over the last five years and what resources have been allocated and initiatives put in place to promote the development of new co-operatives? Although co-operatives have existed since 1925, there are now only 87 co-operatives, a relatively small number compared to the potential for this sector to grow. Is the Ministry satisfied with this number? How many more new co-operatives does it expect to see established over the next few years?

Third, could the Minister of State clarify on the meaning of "financial services" under section 16B(1), something which Mr Seah Kian Peng has also already touched upon. This provision prohibits credit societies from entering into partnerships, joint ventures or other arrangements with any person to provide any financial service other than the financial service or services which it is registered to provide. Does the restriction apply to all types of financial services, such as taking deposits, giving personal loans or hire purchase? Or does it refer to specific products, such as fixed deposits, housing loans, car loans or study loans? If the process of seeking approval is too onerous, it might stifle positive initiatives from co-operatives and prevent them from providing timely products or services that cater to the needs of their members. Could the Minister of State also clarify

whether there will be guidelines issued to inform co-operatives on the criteria that will be used to approve such applications? This would ensure greater transparency and would ensure that credit co-operatives are better able to comply with the requirements. At the same time, clarity as to the definition of financial service is important as the fine for

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violating the registration provision is quite punitive.

Fourth, could the Minister of State clarify whether it is possible to exempt existing credit co-operatives from the requirement of section 39(3A) which imposes an additional criterion for individuals to qualify for membership in a credit society? Members of credit co-operatives must now belong to a field of membership consisting of a pre-existing common bond of association or community of interest. The concern of credit co-ops is that if this requirement is adhered to stringently they will suffer a membership decline. Is there any flexibility to exempt existing credit co-operatives or to give them longer time to comply with this requirement?

Finally, could the Minister of State also clarify how the Ministry would be working with the co-operatives to assist them to comply with the new requirements, especially the smaller co-operatives with few or no full time staff? Many are already struggling to comply with the existing law and the requirements would add additional compliance obligations on them. What assistance would be rendered to them to enable them to comply with the new law?

On this note, Sir, I support the Bill.

5.02 pm

Mrs Yu-Foo Yee Shoon: Mr Speaker, Sir, I would to thank the hon. Members, Mdm Halimah Yacob, Mr Sin Boon Ann and Mr Seah Kian Peng for their support and comments. Let me address the points they have raised.

Mr Sin Boon Ann had cited the genesis of the co-op movement of Rochdale and asked whether these principles will be required of co-cops through the Bill. The co-op movement worldwide subscribes to the co-op principles that have been developed by the International Co-

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operative Alliance. The existing Act already requires co-op principles to be incorporated into the objects of co-ops.

Mr Sin had suggested that co-ops are not much different from other business entities. Co-operatives are businesses with a social mission. As there are limits to the return on co-op capital, the primary motivation for co-ops is not the maximisation of investor capital, unlike companies which maximise returns to shareholders. For example, the subsidiary co-op legislation limits the amount of dividends that can be paid to members to 10% of the net surplus of the co-op. Co-ops also need to serve their social purpose, be it providing employment to vulnerable groups or products and services to members at cheaper prices.

As an illustration of the social role of co-ops, I would like to draw the attention of the House to some examples of their contributions to the community. The NTUC co-ops play a key role in moderating the prices of food, insurance, dental and medical care, childcare and eldercare. The social charter of the NTUC co-ops benefits not only their members but the larger community as well. For example, NTUC FairPrice has extended a 5% discount on 500 of its house brand items to its customers since December last year. This discount is estimated to save consumers up to $1.5 million over three months.

Mr Sin had asked how the Bill will strengthen co-op governance. Co-ops are member-based entities with the general meeting of members as the supreme decision making authority for the co-op. The authority of the general meeting will continue to be enshrined in co-op legislation. This is in line with the co-operative principle on democratic member control. Through the general meeting, members have a direct say in the constitution and resolutions of the co-op. Like shareholders in private limited

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companies, co-op members should be very involved in the management of co-ops.

The co-op Committee of Management is similar to the Board of Directors of companies. The Bill will strengthen the Committee of Management by tightening the disqualification criteria for the members of the committee. The duties of these members will also be brought in line with those applicable to company directors. Due to their higher stewardship responsibilities, credit co-op committee of management will be subject to independence requirements and credit co-ops will need to form Audit Committees.

However, the Bill will not require non-credit co-ops to be subject to similar independence and Audit Committee requirements. These are best practice measures which are already included in the Code of Co-op Governance which has been implemented by the co-op apex body, the Singapore National Co-operative Federation (SNCF). Best practice governance requirements are best handled outside legislation and should be led by the co-op movement itself, in line with the principle of self-regulation.

Mr Speaker, Sir, Mr Sin Boon Ann had suggested that co-op governance be levelled up to that of public-listed companies. In contrast, Mr Seah Kian Peng had questioned whether it was fair to subject credit co-ops to a level of regulation on par or even higher than that applicable to financial institutions. Mdm Halimah requested us to have a more balanced approach. I agree with her. Mdm Halimah also asked whether it is possible to exempt existing credit co-ops from the requirement under section 39(3A) that individual membership be limited to those with a pre-existing common bond or affiliation.

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Financial institutions play an integral role in Singapore's financial system and offers financial services to the public. MAS licenses financial institutions and subjects them to a rigorous regulatory framework. This framework includes complex and comprehensive rules to maintain a minimum level of capital in proportion to the risks taken, rules on maintaining minimum liquid assets, various prudential limits that limit their exposures and concentration risks, rules on classifying loans and maintaining adequate loan loss provisions. Financial institutions are also subject to a supervisory regime, both onsite and offsite, that continually assesses their governance, risk management practices and controls and processes. My Ministry appreciates the concern raised by Mr Seah Kian Peng and Mdm Halimah Yacob on the impact the Amendment Bill will have on credit co-ops.

Credit co-ops are not subject to MAS's direct licensing and regulatory oversight. As they are not subject to the same licensing and regulatory standards as banks and finance companies, credit co-ops are not allowed to serve all members of the public. Hence, we have proposed to require credit co-ops to have clearly defined membership bases. As credit co-ops should not be reaching out to the general public, there should be no need for them to engage in public advertising. They are free to advertise directly to their members. Similarly, as credit co-ops do not serve the general public, there should not be an unregulated growth of branches and ATMs. Without these restrictions, it is possible that credit co-ops will continue to reach out and recruit new members from the public who are unaffiliated to the co-op.

While they are not subject to the same licensing and regulatory standards as banks and finance companies, each credit co-op will nevertheless need to be subject to stringent governance and prudential

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requirements to protect the interests of their depositors. Credit co-op members are generally from the working class, many of which can ill-afford to lose their savings through improper stewardship of their deposits. The average size of each deposit account in credit co-ops is about $5,000. However, the total amount of deposits in all the credit co-ops is about $1 billion. This is not a small sum. The Bill will authorise the Minister to set prudential and financial requirements for credit co-ops. This will better protect the interests of credit co-op members and increase the confidence of these members in the credit co-op movement. It will help protect the sanctity of the depositor funds in credit co-ops and ensure good governance. The level of prudential regulation of credit co-ops will take into account the much smaller size of the entities and the role that they play in society.

Mr Seah Kian Peng and Mdm Halimah had expressed concerns that the restrictions on credit co-op membership will put a cap on the ability of credit co-ops to grow and adversely impact the credit co-op movement. I would like to assure Members of the House that this will not be the case. Under the Bill, credit co-ops are also allowed to 'grandfather' or retain existing members, even if they are outside the co-ops' defined membership affiliations. So, credit co-ops will not need to lose existing members as a result of the new section 39(3A) requirements.

Mr Speaker, Sir, there are 41 credit co-ops and only 11 currently have clauses in their by-laws that allow any member of the public to be their members. So, credit co-ops with clearly defined memberships have been able to sustain their operations. Through our consultations with the credit co-ops, we know of two credit co-ops that may have difficulties redefining their membership. For these credit co-ops, we can apply total membership limits that will provide flexibility for these co-ops to grow at a measured pace. The Bill includes an

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exemption provision that allows co-ops to apply for exemption from any of the requirements of the Act. For exemptions from section 39(3A), credit co-ops will need to provide justifications why they are unable to meet the requirements. The credit co-op should also be able to show how it will still contain its membership such that it will not be able to take in all members of the general public. Under the Bill, credit co-ops will be given a one-year transitional period to meet with new requirements applicable to them.

Mr Seah had asked whether credit co-ops will be allowed to operate branches and ATMs. The Registry may issue written directions to require credit co-ops to inform the regulator of new ATMs and branches. The Registrar may prohibit the credit co-op from further expansion of its branch and/or ATM network, taking into account specific circumstances surrounding the co-op. It will not be necessary to obtain licences to operate branches under the Banking Act.

The Bill allows advertising restrictions to be prescribed. As I had mentioned above, credit co-ops serve their members and not the general public. There is little reason for the credit co-op to advertise its products and services widely to the general public. However, co-ops are free to advertise directly to their members. We will consult the apex co-operative body, the Singapore National Co-operative Federation (SNCF) and other key stakeholders to ensure that these provisions of subsidiary legislation are workable.

Both Mdm Halimah and Mr Seah had sought clarifications on the interpretation of "financial service" under the Bill. "Financial service" includes "receiving deposits" and "granting loans". Mdm Halimah further enquired on the application of section 16B(1) of the Act which will prohibit a credit society from providing financial services other than the

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financial services which it is registered to provide without the approval of the Registrar. Mdm Halimah had asked whether credit co-ops that are registered under the new regulatory regime will subsequently need to seek the Registrar's approval to introduce new financial services. Under the new Act, credit societies will be registered to provide financial services which, as explained earlier, includes "receiving deposits" and "granting loans". If a credit society is already registered to provide deposits, it will not need to seek further regulatory approval to provide new deposit products. Similarly, if a credit society is registered to provide loans, further approval is not required for it to introduce housing loans or new types of loan products.

Mr Seah had sought clarifications on the consequential amendments to other Acts. In the usual course of co-op business, the provisions of the Banking and Finance Companies Acts will not be applicable to co-ops.

However, should co-ops extend financial services to the public and engage in "financing business", as defined in the Finance Companies legislation or banking business, the relevant provisions of these two Acts will apply. So, this is in line with the level playing field principle as mentioned by Mr Sin.

Mr Seah had asked for the impact of sections 73 and 52 of the Banking Act on co-ops as a result of the consequential amendments. The former section relates to the Public Prosecutor's consent for prosecution, the latter about certain responsibilities when a bank is taken over by MAS or a statutory manager. As long as co-ops do not conduct banking business and do not breach the provisions of the Banking Act, these provisions will not apply to co-ops. The House may be wondering whether we should only

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subject co-ops to the specific applicable provisions of the Banking Act then. The consequential amendments proposed by the Bill is the approach used for other such amendments.

Mr Seah had proposed that as part of the registration process, the applicant should attach their business plans. This is a good practice and we can work with SNCF to implement this. Mr Seah would like to know the definition of "residents of Singapore" under the Bill. Generally, "residents in Singapore" refers to permanent residents in the context of the relevant provision of the Bill. Mr Seah asked if co-ops can appoint non-members to their Committees of Management. Existing co-op legislation does not require only members to be on the Committee of Management. There is no limit to the number of non-members that can be elected to the Committee of Management. This will not be changed through the Bill.

Mr Seah suggested that a minimum debarment period should be set for persons convicted of any offence involving fraud or dishonesty. The debarment period for non credit co-ops has been set at five years. This is in line with the Companies Act. Credit co-ops have higher risk. They take in deposits from members and give out loans. There is a greater possibility of fraud or dishonesty taking place in credit co-ops as compared to non credit co-ops. Hence, we have not set a minimum debarment period for credit co-ops. However, the Bill allows the Registrar's approval to be sought to allow persons disqualified of relevant offences to be appointed to the Committee of Management.

Mr Seah had asked if SNCF will be designated as a reporting body for non-affiliates. Under subsidiary legislation, SNCF may be delegated to be the reporting body for submission of documents from its affiliates. SNCF can be designated as the reporting body for

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non-affiliates, but this will be determined after discussions with SNCF.

Mdm Halimah asked whether there were measures in place to help smaller co-ops grow and develop. In line with the co-operative principle, the SNCF helps develop all co-ops, especially the smaller co-ops. Under existing co-op legislation, co-ops are required to contribute to the Central Co-operative Fund (CCF). The CCF is used to promote the development of the co-op movement. The SNCF taps on the CCF to carry out promotional and developmental programmes for the co-op movement. For financial year 2008 to 2009, CCF allocated a budget of $5.2 million for SNCF to implement these programmes.

SNCF assists co-ops to build up their operational and manpower capabilities in various ways. Co-ops may apply for a "Special Project Grant", to implement projects like IT improvements and consultancy services. Since 2006, 18 projects with grants of more than $340,000 were approved. In addition, SNCF has introduced shared corporate services. Smaller co-ops with limited resources are encouraged to outsource certain functions like accounting and membership management. Since 2007, SNCF has assisted five co-ops to outsource their accounting management to an external vendor.

We note the concern that some co-ops may have initial difficulties in coping with the regulatory changes. Mr Seah has suggested a light and human touch in the regulation of co-ops. We agree, and will do so. We are extremely conscious of the role of co-ops in our community. We assure the House that MCYS will work with SNCF to provide the necessary assistance and training to all co-ops. There will be seminars and information packages to explain the changes and provide answers to questions from co-ops. We will also formulate and provide model by-laws to credit and non-credit co-

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ops so that they can use them for reference when considering the necessary amendments to their own by-laws.

Mdm Halimah and Mr Sin Boon Ann had enquired on the number of co-ops formed. In the past five years, eight co-ops were registered. This represents a 10% increase in the number of co-ops.

We recognise that more can be done to promote and facilitate the formation of co-ops. Co-ops legislation sets the framework for the formation and development of co-ops. The promotional and development agency for co-ops is SNCF. As mentioned earlier, SNCF is funded by the Central Co-op Fund. The Central Co-op Fund Committee is led by a representative of the co-op sector. The Central Co-op Fund Committee has recently implemented measures to encourage the formation of new co-ops, particularly those that benefit disadvantaged groups. SNCF has employed new staff to actively seek out those interested in forming new co-ops, assist them in setting up the co-ops and provide funding support where necessary. This approach has shown encouraging results. In this year alone, two new co-ops have been registered and three applications are currently being processed. One of the new co-ops is WeWorkz for which more than $400,000 of Central Co-op funding was approved for it to help women, especially those who are unable to find full-time employment, to engage in home-based economic opportunities. There has also been a marked increase in the number of enquiries on co-op registration.

Mr Speaker, Sir, I had begun my speech by citing the role played by credit co-ops during the 1920s in meeting the financial needs of public sector employees. I had also highlighted to the House the role played by co-ops in present day Singapore. With this Bill, co-ops will be better able to meet the challenges of its operating environment

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while serving their members and the community. The Bill balances the need for greater oversight of higher risk co-ops while liberalising those aspects of co-op operations which can be more effectively decided by the co-ops themselves. We have taken a measured approach in arriving at this Bill which was based on the recommendations of the co-op review team. We consulted SNCF, NTUC, MAS and other key stakeholders at various points along the way. This risk-based regulatory approach will further strengthen the position of the co-op movement in Singapore and increase the confidence of members and the public in the co-op movement. We will continue to review co-op regulation to ensure that it is relevant to the needs of all stakeholders. So, I assure the Members that we will review from time to time.

5.30 pm

Mr Sin Boon Ann: Mr Speaker, I would like to thank the Minister of State for a very comprehensive reply to my earlier questions. I just have three questions which I would like to ask the Minister of State.

The first question is, she had said there is a fair amount of supervision by the members of the co-operative of the management. Based on the Ministry's understanding, would she be able to tell the House how many members generally participate at the members' meeting and the level of participation in the selection of leaders of these co-operatives.

The second question is more fundamental and, that is, I understand that credit unions or societies are not widely exposed and, therefore, they are not required to come under the supervision of the MAS. The difficulty often is where does one draw the line between members of the public and

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members of a union or society. Do 10,000 members constitute the public or do you confine these 10,000 to just the membership of the union? Surely, if there is a sizeable number, how do we then have the confidence that the credit societies have the same robustness of supervision that the MAS subjects the financial institutions too?

As I was sitting there listening to MOS, I was quite concerned to learn that there are over $1 billion worth of money sitting in these credit societies. I was thinking why it is not the case that we cannot bring these credit unions within the supervision of the MAS; particularly when such huge sums of money are involved and also because the people who have an interest in these savings are not people of substantial means.

My final question is, I did say earlier in my speech that perhaps the Government can consider repealing the provision of the inability of the courts to review the decision of the liquidator. Perhaps, the MOS can respond to my earlier plea for repealing such a provision.

Mrs Yu-Foo Yee Shoon: Mr Speaker, Sir, under the Co-operative Societies Act and also the by-laws of various co-operatives, the general meeting is the supreme authority and it is based on the one-share-one-vote system. They need to have quorum for a meeting, and they must fulfil the required number of attendees before a meeting can be called. So, there are some safeguards.

The other point is whether credit co-ops should come under the supervision of MAS. Like I mentioned just now, the credit co-ops were started by a group of people who know each other, and they only confined it to deposits and simple loans. Now, they have grown bigger and, therefore, we want to amend the law to make sure that if they want to provide

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more comprehensive financial services, they will automatically come under the regime of the Banking Act or under MAS supervision. If they confine themselves to their membership and limit themselves to providing certain approved financial services undertaken by co-operatives, then they do not need to come under the Banking Act or Finance Act. This is quite clear.

I mentioned just now that the $1 billion is from the 41 credit co-operatives in Singapore. It is quite a big amount and, therefore, we want to have this restriction. The Member mentioned about the members. For instance, for NTUC Thrift and Loan, the umbrella is definitely broader. At this moment, they have 60,000 members. But if you take the Telecoms Union, the teachers union or AUPE, the number of members is smaller. Only 11 out of 41 credit co-operatives today have a by-law clause to say that they can extend their membership to the public. But we want them to amend their by-laws to confine it to only their members or family members.

This Amendment Bill also strengthens the power of the Registrar and it also gives more powers to the Minister. If the Registrar or the Minister is unhappy about certain things, he can dissolve the co-operative or he can suspend the accounts of the co-operative. The Registrar may also refer questions of law to the High Court. So it is not completely withdrawn from the judicial system. On the management and day-to-day execution of duties, we empower the Registrar and the Minister, but other than that, we still can go through the process of our legal system.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

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The House immediately resolved itself into a Committee on the Bill. – [Mrs Yu-Foo Yee Shoon].

Bill considered in Committee.

Mrs Yu-Foo Yee Shoon: Clauses 1 to 31 inclusive agreed to stand part of the Bill.

Clause 32 –

Mrs Yu-Foo Yee Shoon: Sir, I beg to move,

In page 23, lines 3 and 4, to leave out "for 3 months or more".

Sir, clause 32 of the Bill specifies the eligibility criteria for certain officers of the society. The amendment is necessary to rectify the technical error created by the words "for 3 months or more".

Clause 32 , as amended, ordered to stand part of the Bill.

Clauses 33 to 59 inclusive ordered to stand part of the Bill.

The Schedule ordered to stand part of the Bill.

Bill considered in Committee; reported with an amendment; read a Third time and passed.