Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.
Despatches from the National Housing Federation’s Governance Conference
It was fantastic to see so many of our clients at the conference this year. It was particularly enjoyable to have a setting in which to actively engage with each other on a larger scale – the improvements in virtual conferencing were evident!
Sarah Greenhalgh and Jenny Neville, ForViva, spoke on the topic of ‘Fit for purpose structures’ – exploring how your structure can enable you to achieve your strategic objectives. We came away with three guiding principles:
- Have clarity about your objectives for the project from the outset – following the guiding principle ‘form follows function’. Scope creep is a key risk. Don’t get caught up in delivery without revisiting your objectives intermittently to check that you are still on course.
- Invest time with the board equipping them with the understanding and knowledge to make decisions – this gives them confidence in setting assumptions / caveats and touch points, and equips them to revisit the structure in the future.
- Find a way to get in the room! Governance teams are vital to ensure that these projects are delivered in a way that results in success.
Our Fit for Purpose webinar series considers key issues in order to enable organisations to equip themselves with the most suitable structure. This month we looked at joint ventures – how to plan and integrate these into your business. The next edition ‘Learning from Governance Downgrades’ will be held in July.
The roundtable ‘Is a Senior Independent Director (SID) business critical?’ was facilitated by a panel who are passionate about the role’s benefits. Breakout sessions were a great opportunity for organisations who are considering the role to come together with those who have already adopted it. The group we were in looked at the role of Vice Chair and SID, the pros and cons of external and internal recruitment of a SID, the SID’s role in stakeholder management and the challenges – and benefits – of there being no established role description. If you are looking at adopting a SID role why not read our briefing: Why the role of SIDs is business critical for housing associations. We also run a Network for SIDs in the social housing sector with Savills and Abri – see further details of this here.
What was particularly acute from the day was the opportunity to reflect on a year of change in how governance functions are run. The coffee chat room facilitated by Sarah Greenhalgh and Gemma Burton-Connolly looked at the theme of ‘Reignite your passion for governance’. This was attended by over 40 participants, sharing thoughts on virtual meetings, what hybrid models might look like and how best to induct new board members in this ‘new world’. Some might call it a joint therapy session!
Thank you very much to the NHF for organising such a successful event. We look forward to seeing you all again next year (hopefully in person!).
Trends in regulatory judgements and notices
Every month we consider key themes arising from regulatory judgements during the previous month to track trends and enable you to consider these in light of your own arrangements.
This month, governance upgrades focused around improvements in risk management and stress testing, a continuing common theme. This included:
- Strengthening of board oversight and improvement in risk management and internal controls assurance frameworks (in particular in relation to health and safety compliance and the availability of data).
- Setting of overall risk appetite by the board.
- Provision to the board of sufficient assurance on the management of key risks in relation to health and safety compliance.
- Improvement in quality of stress testing to include multi-variant testing against cash and funder covenants for conditions that could cause the business to fail.
- Previous downgrades emphasised the need for organisations to communicate with the RSH in a timely and transparent manner in line with the principle of co-regulation.
Salvation Army Housing Association (SAHA) was downgraded to a non-compliant G3 grade. The regulatory judgement emphasises:
- Lack of assurance that the board has been managing its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight and that SAHA’s governance, risk management and internal control frameworks are effective.
- Weaknesses in governance and in the effectiveness of board oversight and scrutiny, including inadequate reporting.
- That the impact of the crystallisation of key risks would be severe, impacting on its lending arrangements and as a result, placing social housing assets at undue risk.
- The board was not sufficiently sighted on the extent of the exposure, and it had also allowed some critical elements of potential mitigation strategies to expire, leaving no mitigation strategies available to it within its control, and was wholly reliant on the actions of others.
- The approach to risk management was not considered to be sufficiently robust and its reporting and monitoring systems were inadequate.
SAHA is creating a recovery plan and has replaced some of its board members.
Brent Community Housing Limited (BCHL) was also issued with a regulatory notice confirming that it is non-compliant with the Governance and Financial Viability Standard for failing to submit annual accounts and therefore failing to provide assurance of its financial viability. It has since passed a resolution for a voluntary winding up, which has triggered the RSH’s insolvency process.
Within the notice, the RSH stated that:
- It has not managed its resources effectively to ensure its viability can be maintained and has not ensured its governance arrangements are effective.
- It has not been able to demonstrate that it has managed its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence, and foresight.
- It has failed to ensure that it has an appropriate, robust, and prudent business planning, risk and control framework that ensures sufficient liquidity at all times.
- BCHL is unable to account for a material sum of money and is unable to meet its obligations under its lease arrangements.
RSH Corporate Plan 2021-2024
The Corporate Plan sets out how the RSH intends to deliver on its purpose to regulate RPs in a way that promotes a viable, efficient and well-governed social housing sector.
For the next three years, the RSH’s strategic objectives are to:
- Deliver effective regulation to help maintain stakeholder confidence;
- Support the sector’s capacity to deliver safe, sustainable and affordable homes;
- Implement reforms outlined in the Social Housing White Paper (which will require legislative reform);
- Promote a shared understanding of changes in the social housing sector so that it can foresee emerging risks; and
- Continue to develop RSH’s framework and approach in line with the sector’s risk profile and forthcoming changes in the RSH’s objectives and remit.
The RSH also considered the following policy changes are likely to shape the sector over the next three years. These include:
- The Affordable Housing Programme 2021-2026 which aims to provide certainty about investment in housing supply;
- The Energy White Paper and Future Homes Standard which together set EPC targets for homes and aims for all new-build homes to be zero carbon ready; and
- The Phase II hearings of the Grenfell Public Inquiry and the related proposed Building Safety Bill which will create a new Building Safety Regulator and introduce a requirement to have a resident engagement strategy for certain buildings.
Update from the Mutual Societies Team
The team published details of its main developments during financial year 2021/22. These include:
- Implementation of a number of measures to mitigate the impact of Covid-19, for example:
- Confirming it will not take any action on the late submission of annual returns where these are due by 31 October 2021 and are delayed by three months or less.
- Submission of application forms electronically (through the FCA portal or by email) with electronic signatures.
- Guidance on the holding of general meetings - the FCA has confirmed that it does not consider it to be in the public interest to take action against societies where they have postponed general meetings.
- Throughout the year, 222 new societies were registered and 114 were deregistered. The FCA determined a total of 2,467 applications.
- Holding meetings with those representing and working with Mutual Societies to help understand what the FCA can do to help societies as the registering authority.
Interestingly, the FCA also issued a notice of proposed cancellation to a co-operative society because it was carrying on business with the object of ‘making profit’ which is expressly incompatible with co-operative status under the Co-operative and Community Benefit Societies Act 2014. As a result of being served with this notice, the society undertook the statutory process for conversion to a company which was finalised in April 2021.
One to watch: Charities Bill
Ruth Douglas, Head of Legal Policy for the Charity Commission, presented at the Charity Law Association AGM on 3 June 2021 on the topic of the Charities Bill. She confirmed the Charity Commission’s support for the reforms, understanding them to make life simpler for trustees, and help trustees maximise the benefits that their charity delivers. The Charity Commission is appearing as a witness at the Parliamentary Committee and has a key role to play in implementing the changes (once the Bill has been approved by parliament).
As a reminder, the key changes proposed by the Bill are to simplify the law around:
- making changes to a charity’s governing documents;
- payments to trustees in certain circumstances for goods and services provided;
- using funds for ex gratia payments or using funds obtained in connection to specific fundraising campaigns for other purposes (cy-près powers);
- utilising permanent endowments; and
- disposals of charity land.
Whilst relevant mainly to registered charities, changes in process and policy here can also be applied as best practice to exempt charities so is well worth keeping an eye on.
How can you stay compliant?
All RPs are required to meet the Governance and Financial Viability Standard requirement to comply with ‘all relevant law’, and make certifications in their annual accounts in respect of this.
We can help you with you with the provision of a variety of services, enabling you to demonstrate compliance, including:
- Reviews of your internal processes
- Annual compliance reporting to your board
- A subscription-based legal update service covering key legal, regulatory and policy changes within the social housing sector
Find out more on how we can help you stay compliant.
Join us at our forthcoming online events:
Tuesday 6 July, 11.00 – 12.00pm
A network aimed specifically at SIDs, to increase their contacts within the housing sector and provide a space to share experiences
Fit for purpose structure series
What can we learn from governance downgrades?
Thursday 15 July: 12.00 - 13.00
This webinar will consider previous regulatory downgrades and what they teach us - including how good governance is central to managing sustainable growth and change: learning the lessons from the past to inform your plans for the future.
- Sarah Greenhalgh - Partner, Bevan Brittan
- Angela Lomax - Director, DTP
- Louise Bassett - Executive Director of Corporate Services, Gentoo Group
- Chris Fawcett - Business Transformation Director, Broadacres Housing Association
- Harold Brown - Senior Assistant Director, Regulator of Social Housing