Consumer Regulation Review 2020-2021
The Regulator of Social Housing (RSH) published its ninth consumer regulation review last week. The report sets out how RSH regulates consumer standards and offers helpful learning points for Registered Providers (RPs).
Unsurprisingly, the RSH highlights that there is a clear link between weak governance and an organisation’s ability to demonstrate compliance with the consumer standards. It is crucial that governance is effective to provide assurance that the provider is meeting the consumer standards and keeping its tenants safe. The review highlighted the importance of this, where providers are not delivering all the services themselves, and have arrangements with third-party managing agents or contractors.
Whilst this has arisen particularly from the increased engagement by the RSH with lease-based RPs, it is an important reminder for all providers. Most RPs contract out management of some of their properties, or deliver management services for others, whether on a large or small scale, as well as being party to management companies managing larger estates. In our experience, these arrangements are not always robust in terms of providing adequate reporting mechanisms or KPIs, and in some cases not even documented due to their historic nature. It is worthwhile reviewing what arrangements your organisation has and how you monitor these.
The review also showed that:
- organisations with good quality records and data about their properties and tenants were better able to manage risks to help ensure tenant safety
- landlords tried various ways to engage with their tenants, including the most vulnerable, and need to continue ensuring that tenant voices are heard
- Boards that used the insight and learning from complaints to review their operations were more likely to avoid potentially system-wide failings, which could lead to non-compliance with consumer standards.
This latter point emphasises the importance of a complaints-led culture in organisations as reported by the Housing Ombudsman in its guidance: ‘Effective Involvement of Governing Bodies in Handling Complaints’ (see the July edition of the snapshot for further information).
Fiona MacGregor’s speech at the CIH Conference last week also reiterated the need for organisations to ensure they are taking steps to implement the Social Housing White Paper proposals now rather than wait for the new Consumer Standards - which are quite some way off.
Our monthly review of regulatory upgrades/downgrades/regrades/notices in the sector has highlighted the following themes:
- When authorising conflicts of interest, ensure that adequate attention is paid (and documented) to the required outcome of the Governance and Financial Viability Standard to safeguard the reputation of the sector and ensure that arrangements do not inappropriately advance the interests of third parties (which is judged objectively by the RSH). This is particularly important when considering long-term, significant transactions. In the case in question, the authorisation of the conflict led to the layering of long-term risks into the business.
- Attention again was given to the adequacy of business planning, risk and control frameworks. In this instance, there was a lack of framework to record risks identified or the controls in place to manage those risks.
- Notices relating to lease-backed providers continued along consistent themes in relation to the concerns around financial sustainability and compliance with the rent standard. Although these notices have arisen from smaller providers, we are aware of larger providers looking at a variety of lease-based management arrangements. Whilst long-term financial risks can be subsumed more easily where such leases are delivered as part of a diverse portfolio, they do still carry similar risks and it is therefore important that arrangements are carefully scrutinised.
Charity Commission Covid-19 Guidance for the Charity Sector
The Charity Commission has regularly updated and maintained its guidance during the pandemic, and the most recent updates (3 August) reflect the gradual lifting of restrictions and the ability for organisations to hold meetings in person.
Whilst the guidance retains the Commission’s stance on flexibility to hold virtual meetings where it is considered to be in an organisation’s best interests to do so, even where constitutions do not explicitly allow for this, recent changes hint at a less sympathetic approach moving forwards.
If you have not yet amended your constitution to allow this flexibility for the current AGM season, then you should ensure to plan this into your meeting agenda in good time for next year. Sooner may be better than later if you are planning any significant transactions over the course of winter.
Institutional Shareholder Services: proxy voting guidelines
Institutional Shareholder Services: proxy voting guidelines
On 28 July 2021 the Institutional Shareholder Services (ISS) published a survey seeking views for the purposes of developing its voting policies for 2022, along with a separate climate-related policy survey.
Matters on which ISS is seeking views include:
- Whether incorporating ESG performance metrics into executive compensation programs is an appropriate way to incentivise executives, and if so, whether short or long-term incentives are most appropriate.
- Third-party racial equity audits, including which companies would benefit from such an audit.
- Virtual-only meetings, including which practices would be detrimental or problematic if a company holds a virtual-only meeting, and appropriate ways for shareholders to voice concerns regarding such practices.
- Defining climate-related material governance failures, including what actions should be the minimum expected of companies whose operations, products, or services are considered as strongly contributing to climate change, and whether similar expectations are reasonable for companies not as strongly contributing to climate change.
- Deal breakers for shareholder support for approval of a management-proposed climate transition plan.
- When a say-on-climate shareholder proposal requesting a regular advisory vote on a company's climate transition plan warrants shareholder support (see our May edition of the snapshot for more detail about ‘say-on-climate’ votes).
Both surveys closed on 20 August 2021 and ISS expects to open a further public comment period in October on key proposed changes to its voting policies for next year.
Whilst these themes are unsurprising they are helpful guides for the key issues affecting larger corporates and their investors, and ideas such as ESG incentive schemes and say-on-climate votes are well worth considering.
Financial Conduct Authority: consultation on diversity on boards and executive committees (CP 21/24)
The FCA is seeking views on proposals to amend the Listing Rules and the Disclosure Guidance and Transparency Rules in relation to diversity on boards and executive committees.
The FCA proposes to add new rules and guidance to:
- include, comply or explain requirements for gender and ethnicity targets for boards
- require companies to publish data and policies in relation to gender and ethnic diversity. The FCA also seeks views on whether in future it should require data on sexual orientation
- suggest that companies may wish to include in their annual financial reports a summary of any key policies or procedures that contribute to improving diversity of its board and any plans to improve diversity, and
- indicate that a company's disclosure on its diversity policy should also include the diversity policy applied to its remuneration, audit and nominations committees, and should also cover aspects such as ethnicity, sexual orientation, disability and socio-economic background.
Whilst this is relevant at the moment to companies listed on the stock exchange, it clearly indicates the direction of travel and requirements of investors more widely including for registered providers with listed debt. The consultation closes on 22 October 2021 and the changes are expected to apply to accounting periods starting on or after 1 January 2022.
Financial Reporting Council: corporate reporting
The FRC has published a report on corporate reporting which highlights the importance of organisations reporting on risks, uncertainties and scenarios, as well as opportunities.
In particular, the report highlights that investors would be interested in understanding:
- the organisation’s view of the macroeconomic, microeconomic and geopolitical environment and the industry-wide risks and uncertainties faced
- whether assessment of the risk or an opportunity's significance or potential impact has changed and if it has been considered in the organisation’s viability assessments
- the nature of the risks (and uncertainties) faced by an organisation (i.e. internal, external, strategic, operational)
- impacts of the risks in the context of its business model, strategy and purpose and whether and how key performance indicators (KPIs) and other metrics are tailored accordingly
- mitigating actions and strategic activities undertaken so as to assess how the organisation may respond to risks and uncertainties in the future
- the different scenarios and situations considered, and stress tests performed, and how these tie into other areas of risk-related reporting and the organisation’s view of the future.
You may wish to take this into account in the contents of your annual reports for next year - RPs are very well placed to provide comprehensive reporting on these issues!
- Remember: powers of attorney should be reviewed regularly (and at least annually).
- AGM season is upon us! We offer our clients a free helpline so give us a call if you have any last-minute questions.
- Are you a new Homes England Strategic Partner or Delivery Partner? Congratulations! The agreements that go alongside this include some important cross-overs into your finance and governance/legal teams, as well as development. We have lots of experience in dealing with these matters having worked closely with several existing strategic partners, so do get in touch to discuss.
- Upcoming events:
- Committee Chairs’ Network: 29 September – this time we will be looking at disrepairs and how your committee structures obtain the assurance they need.
- Next ‘Fit for Purpose Structures’ webinar will look at mergers: coming up in October.