Economic Secretary to the Treasury Tulip Siddiq writes that the move is part of “the government’s commitment to unlock the full potential of the mutual and cooperative sector in the UK, and the importance of effective and proportional regulation in supporting this”.

The letters, dated 14 November, were sent to the Financial Conduct Authority and the Prudential Regulation Authority.

Siddiq asked for reports “assessing the current mutuals landscape” before the end of next year.

The letters came as Chancellor Rachel Reeves said she would address growth in this sector in her Mansion House speech last night.

The Treasury also issued a call for evidence into Credit Union reform.

It says: “The aim of this call for evidence is to understand whether there is a case to change parts of the common bond requirement, in order to help credit unions grow sustainably and ensure this aspect of the legislative framework for credit unions is fit for the 21st century.”

The department will accept responses from interested parties until 6 March next year.

In her speech, the Chancellor “welcomed” the formation of the Mutual and Co-operative Business Council to drive growth in the sector, which includes the Co-op Group, Royal London, dairy co-op Arla, and Nationwide Building Society.

Building Societies Association chief executive Robin Fieth says: “A strong mutual sector provides choice for consumers and creates resilience for the financial sector.

“When you’re with a mutual, you can be confident that the profits are reinvested in the business and the interests of members and communities, not hived off to external shareholders.”

Fieth adds that he “looked forward” to working with the new Mutual and Co-operative Business Council.

In May, a bill to allow Building Societies to boost lending became one of the final pieces of legislation to make its way through Parliament ahead of the general election.

The Building Societies Act 1986 (Amendment) Bill was part of the “wash up”, which allowed legislation to be passed quickly, before Parliament dissolved on 30 May to prepare for the 4 July national poll.

The original bill was passed almost four decades ago, and at the time limited the portion of cash building societies could raise from money markets to 20%, with the rest from their members.

This has been gradually lifted and now stands at 50%.

However, the amendment keeps this limit but excludes three types of funding from the calculation, which in effect allows mutuals to raise more cash from outside sources.

These cover:

• Funds accessed from the Bank of England in stress scenarios
• Forms of loss-absorbing debt building societies may hold to ensure that, should the business fail, investors rather than taxpayers bear losses
• Sale and repurchase agreements for types of liquid assets building societies hold as capital buffers