Customers and membership of mutuals

From time to time we are asked whether all customers of a mutual must be members.

One of the factors that ASIC may take into account in determining whether a company is a mutual is whether each customer of the company is required to be a member of the company.

This depends on the the history, structure (as set out in the Constitution) and circumstances of the company.

In ASIC RG147 (“Mutuality – financial institutions”) ASIC accepts that while the requirement for all customers of a financial institution to be members is a relevant factor in determining whether the financial institution is a mutual, it does not see it as fundamental to the concept of mutuality and considers that a company can be a mutual without that feature (RG 147.53).

But care needs to be taken as membership changes to an existing constitution could trigger a demutualisation.

ASIC has 2 mutuality tests: the economic relationship test and the governance test.

The factor which is critical is whether each member (or joint membership) has only 1 vote.

ASIC cautions mutuals in setting membership qualifications to make sure that member qualifications do not effectively advantage a minority (ASIC expects no more than a small percentage of members, such as 10%, to be excluded as a result of membership or voting qualifications).

ASIC makes it clear that while “one member, one vote” is the most common and clearest way to achieve member control over the way their company is governed a company does not cease to be a mutual merely because it has membership or voting qualifications.

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