Section 87 Finance Act 1986: A Landmark in UK Financial Services

Section 87 of the Finance Act 1986, enacted in the United Kingdom, significantly impacted the regulation and operation of financial services, particularly concerning friendly societies. Its primary objective was to modernize the legislative framework governing these societies, allowing them greater flexibility and competitiveness in a rapidly evolving financial landscape. This involved streamlining their operations, broadening their permitted activities, and strengthening regulatory oversight.

Prior to the Act, friendly societies, which traditionally provided mutual support and insurance to their members, faced limitations that hindered their ability to compete with larger, more sophisticated financial institutions. Section 87 addressed this by allowing them to offer a wider range of financial products and services, including, but not limited to, unit-linked life insurance policies. This expansion of permissible activities aimed to enhance their relevance to the modern consumer and secure their long-term viability.

A key provision within Section 87 involved the introduction of a new regulatory structure. While previously governed by a more decentralized system, the Act placed friendly societies under the purview of a central regulatory body, typically the Registrar of Friendly Societies. This enhanced supervision aimed to ensure the financial soundness and integrity of these institutions, safeguarding the interests of their members. It involved stricter reporting requirements, capital adequacy standards, and compliance procedures.

The Act also facilitated the conversion of some friendly societies into public limited companies (PLCs). This process, often referred to as demutualization, allowed them to access capital markets more readily and pursue ambitious growth strategies. While some societies opted for demutualization, others chose to remain mutual organizations, retaining their focus on member benefits and community support.

However, Section 87 wasn’t without its critics. Some argued that it paved the way for the erosion of the traditional mutual ethos of friendly societies, prioritizing commercial considerations over member welfare. The demutualization process, in particular, sparked debate regarding the distribution of assets and the potential for short-term gains at the expense of long-term member interests. Despite these concerns, the Act undeniably reshaped the landscape of friendly societies, prompting significant consolidation and modernization within the sector.

In summary, Section 87 of the Finance Act 1986 represents a watershed moment in the history of UK financial services. By modernizing the regulatory framework for friendly societies, it enabled them to adapt to changing market conditions and expand their offerings. While the Act’s legacy remains a subject of debate, its impact on the structure and operation of these institutions is undeniable, marking a transition towards a more competitive and regulated environment within the financial sector.