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Friendly societies to benefit from simpler, modernised rules

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The Law Commission has today published its final report following a review of the Friendly Societies Acts of 1974 and 1992. The Commission has made a series of recommendations pursuant to which:

  • the 1974 Act would be repealed, ending confusing overlap between the two governing Acts;
  • friendly societies would gain greater flexibility to invest, expand the range of insurance products they can offer and engage with members more easily through electronic communications;
  • member protections would be preserved, while societies would be better supported to grow sustainably.

Friendly societies are organisations that provide insurance and/or other benefits to their members. Since 1793, they have helped their members manage the financial consequences of illness, unemployment, old age and death. Today, friendly societies that carry on insurance business are regulated and supervised by the Prudential Regulation Authority and must hold the necessary regulatory permissions.

As friendly societies are owned and funded by their members, any surplus funds can be used to reduce costs or improve services, rather than being paid away to shareholders. There are 26 friendly societies registered under the Friendly Societies Act 1992 (“1992 Act”) and 88 friendly societies registered under the Friendly Societies Act 1974 (“1974 Act”). As a result of the way the legislation has developed over time, the 1974 Act also applied to other types of society, including working men’s clubs, specially authorised societies and benevolent societies. However, no new societies have been able to register under the Act since  the 1992 Act came into force. New organisations of those kinds must instead register as companies or under the Co-operative and Community Benefit Societies Act 2014, while any new friendly society register under the 1992 Act.

The Law Commission has recommended repealing the 1974 Act and modernising the 1992 Act, creating a clearer legal framework for mutual societies, including by grouping all friendly societies under a single Act.

Professor Solène Rowan, Commissioner for Commercial and Common Law said,

“The current law is spread across different pieces of legislation, making it difficult to understand and apply. Our recommendations would simplify and clarify the rules for friendly societies, helping them operate more effectively, adapt to changing needs, and grow in the future.”

Under the Commission’s recommendations, the 1974 Act would be repealed three years after the new legislation takes effect, giving societies registered under that Act time to re-register or convert to another legal structure. The registering authority, the Financial Conduct Authority, has committed to writing to affected societies and offering practical support during the transition period, including template documents and training seminars.

The reforms would also give friendly societies greater freedom to grow and adapt.

  • Societies would be able to choose their own financial year-end date, rather than being tied to a single date shared across the whole sector. By spreading year-end reporting activity more evenly throughout the year, the change would reduce pressure on friendly societies and on accountants and auditors who currently face a concentrated workload.
  • Smaller, non-regulated friendly societies would benefit from a lighter-touch audit regime, reducing costs for societies that provide discretionary benefits such as help with funeral costs or hardship payments. Friendly societies would also benefit from simpler rules on investing their funds and forming subsidiaries to diversify their services.
  • Changes would make it easier for societies to combine or transfer business to one another where this benefits members, through streamlined processes with proportionate safeguards. This could help smaller societies achieve economies of scale and remain financially sustainable for future generations of members.

Throughout the reforms, member protections have been preserved. Members will continue to have a say in major decisions affecting their society, including transfers, amalgamations and conversions, with clear information provided before any vote.

The final report is accompanied by a draft Bill, the Friendly Societies (Amendment) Bill, showing how the recommendations could be put into law. It will now be for the Government to decide whether to take forward these reforms.

The full report, summary and other documents are available on the project page.