Big Society Bank

Formation In 2000, Labour Chancellor Gordon Brown set up the Social Investment Task Force (SITF) [4] to look at ways to create wealth and promote enterprise to support economic regeneration and community cohesion. The first report of the SITF highlighted the need for "wholesale intermediaries" to provide new sources of capital to help the community finance sector grow.[2] In 2005, an independent body, the Commission on Unclaimed Assets, was set up to consider how money left unclaimed in dormant bank accounts for over 15 years could be used to benefit society. In a consultation paper published in July 2006, the Government recommended the establishment of a Social Investment Wholesale Bank.[5] In March 2007 the Commission published its report "Social Investment Bank – its organisation and role in driving development of the third sector", which provided a blueprint for the institution's funding, goals and governance. The Commission's final report concluded that: ‘the third sector urgently needs greater investment and professional support and suitable capital should be available for organisations at all stages of development.’[6] In 2008, the UK Government introduced legislation to enable unclaimed money in dormant bank accounts to be used for youth facilities, financial inclusion and social investment.[7] In 2008, the Dormant Bank and Building Society Accounts Act 2008 passed with cross-party support. It stated that money from dormant accounts available for spending in England could be used for three specified purposes, one of which was creating a ‘Social Investment Wholesaler’. In July 2009, Office of the Third Sector in the Cabinet Office consulted on the functions and design of this organisation.[8] The idea of a Social Investment Wholesale Bank has generated significant interest from across the political spectrum.[9] As a wholesaler of social investment, it would support the long-term growth of a thriving third sector by working with investors and lenders at the ‘retail’ level. For example, it could: finance Charity Bank’s expansion into new areas which mainstream markets do not reach; support a grant-making trust interested in investing in social enterprises; or provide financial backing to a social enterprise lender (i.e. a credit union) offering fair finance to people unable to access affordable credit.[8] In March 2010, the Labour Government's Budget announced up to £75 million from the dormant accounts would be committed to a social investment fund. On 31 March 2010 David Cameron announced that a Conservative government would set up a "Big Society Bank" funded by unclaimed bank assets as part of a Big Society initiative.[10] A Conservative policy document said the proposed Big Society Bank would not be restricted to lending but would also invest in innovative products such as Social impact bonds.[11] In July the same year, the incoming Coalition Prime Minister, David Cameron, pledged: "We will create a Big Society Bank to help finance social enterprises, charities and volunteering groups through intermediaries… using every penny of dormant bank and building society account money allocated to England." In 2011, the Merlin Agreement between the Government and the major UK high street banks included a commitment for the four largest banks to put £200 million into setting up the Big Society Bank. After consulting with key social sector organisations, Ronald Cohen (BCS's founder Chair) and Nick O’Donohoe (now BSC's CEO) offered the Government an Outline Proposal for the Big Society Bank. The proposal was accepted by the Cabinet Office subject to certain conditions, including regulatory approvals from both the EU Commission and the Financial Services Authority (FSA). An interim "Big Society Investment Fund" was set up under the auspices of the Big Lottery Fund to make investments before the new institution was launched. In April 2012, Big Society Capital was launched by the Prime Minister at an event hosted by the London Stock Exchange.[12] Corporate governance Big Society Capital is an independent financial institution authorised by the Financial Conduct Authority. Independence is ensured by a structure which involves the Big Society Trust on whose board one Government representative serves. Big Society Capital is accountable to the Big Society Trust whose responsibility it is to ensure that Big Society Capital fulfills its mission.[3] Big Society Trust The Big Society Trust is the majority shareholder in Big Society Capital, controlling 80% of the voting rights at shareholders’ meetings. Its role is to ensure that Big Society Capital remains true to its mission. For important issues such as a change to the company's objects or removal of a Big Society Capital director, the consent of at least 75% of the Big Society Trust board is required. Big Society Capital reports regularly to the Big Society Trust on its financial performance, its investments and board and senior manager appointments. The Big Society Capital CEO is invited to attend the Big Society Trust board meetings as an observer. A Governance Agreement between the Big Society Trust and Big Society Capital details the operating and reporting arrangements.[3] Shareholder banks Barclays, HSBC, Lloyds Banking Group and RBS are shareholder banks.[3] Each shareholder bank has committed to subscribe to up to £50 million of Big Society Capital's shares; their individual shareholding will always be less than 10% of the outstanding paid-in capital. The banks can vote at shareholders’ meetings. Their votes are in proportion to their shareholding, but each is capped at 5% of the overall voting rights. The banks are represented on the Big Society Capital board by a bank-nominated director. In addition to information provided to them by the BSC Director, the banks receive all Big Society Capital board papers and quarterly and half yearly reports. In certain circumstances the banks have the right to request a meeting with the senior management of Big Society Capital to discuss its performance.[3]