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Consultation Paper Issued by the Housing Corporation
Comments from The Association of Chartered Certified Accountants

Executive Summary

• The Association of Chartered Certified Accountants (ACCA) is pleased to have been invited to comment on the Housing Corporation's (the Corporation) Consultation Paper 'Regulating a diverse sector'.
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• In general we endorse the Corporation's approach to regulation of Registered Social Landlords (RSLs) in order to ensure accountability to Parliament, taxpayers and tenants following any diversification of a RSL away from conventional social housing activities.
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• We do not, however, feel that the Corporation has adequately defined social housing in relation to RSLs, nor the tests to be applied to RSLs for assessing their diverse activities. Further guidance is required on how to treat RSLs in a group structure or special purpose vehicle or joint venture companies.
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• Although we appreciate the Corporation's concern that a majority of a RSL's business activities be in social housing it is our view, that when assessing an RSL's capacity to undertake diverse activities, the Corporation should be more concerned with a RSL's risk management strategy and the relative risks that each new project may pose to a RSL's overall investment portfolio.
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• ACCA endorses the suggested approach to self-regulation by RSLs, with the Corporation satisfying itself that appropriate overall business directions and controls are in place for the greater level or wider range of activities to be undertaken.
  

Comments

The Corporation has invited comments on specific aspects of its proposals and these are addressed in the paragraphs below.

1. Subject to the comments in paragraph 8 (see below), ACCA supports the Corporation's proposal (par. 3.3 i) to retain the requirement for a majority of a RSL's business activities to be of a social housing nature.
   
   
2. It is ACCA's view that the proposed definition of social housing (paragraph 3.5 of the document) as "homes for letting (except tied accommodation), and associated amenities and services, for people whose personal circumstances make it difficult for them to meet their housing needs in the open market" appears ambiguous from the point of view that RSLs form part of the open market as opposed to the public sector. RSLs also provide low cost homes for ownership, which is omitted from the definition.
   
   
3. We agree that any formal description or definition of social housing is open to interpretation and this has caused us some concern. We are clear that it is the statutory duty of local authorities to ensure the provision of suitable housing (which may be through RSLs) and the improvement of unfit dwellings, under the following legislation: · part 6 of the Housing Act 1996 deals with housing allocations, keeping registers and waiting lists · part 7 of the Housing Act 1996 deals with homelessness and lays down the 5 checks to be carried out in determining eligibility for assistance under the act · section 604 of the Housing Act 1985 (Fitness Standard) gives local authorities power to serve notices on unfit properties and indeed carry out the improvement work themselves if necessary. ACCA does not believe that defining social housing in terms of a RSL's legal status and funding sources would in any way detract from recognition of the good work undertaken by RSLs (i.e. in the wider field of providing homes for people of various special needs). The definition could be supplemented by an indicative list of activities that are considered appropriate for a RSL to undertake.
   
   
4. ACCA believes that it is the Corporation's responsibility to protect the interests of tenants, residents and public investment in RSL stock and that the interests of private investment are already well safeguarded by financial institutions as lenders of private money to RSLs. Whilst the use of Governance and Finance Standards and risk assessment procedures (paragraph 4.2 iii of the document) appear to provide a suitable mechanism for regulating diversity, these procedures should be complemented by a system for monitoring performance.
   
   
5. We believe that measuring diversity (paragraph 4.3 of the document), by taking account of 'capital investment' and 'turnover' to determine the proportion of associated activities which fall outside the description of social housing is a fairly limited approach. It is our view that the Corporation should also consider the ratio of total cost of activities which fall outside the scope of social housing to social housing activities (with shared costs properly allocated).
   
   
6. We agree in principle to the proposed definition of materiality and the method of notification outlined in paragraphs 4.4 and 4.5 of the document subject to comments outlined in section 8 below.
   
   
7. ACCA believes that when RSLs propose to invest in "non social housing activities", irrespective of the percentage of turnover or capital employed, they should be asked to demonstrate a clear business direction and appropriate governance arrangements (see paragraphs 4.6 and 4.7 of the document).
   
   
8. The Corporation's criteria for carrying out a control review (outlined in paragraphs 4.8 to 4.12) to assess whether an RSL's overall business direction and governance arrangements are appropriate for the greater level or wider range of activities undertaken, appears adequate.
   
   
9. The Corporation stipulates (paragraph 4.14 - 4.16 viii) that a majority i.e. 51% or more, of an RSL's turnover or capital should be concerned with activities covered by the Corporation's definition of social housing. ACCA feels that unless the measurement criteria for valuing capital assets is clearly specified, this measure could prove very subjective. Similarly, turnover can also be a subjective performance indicator: low turnover may result from low pricing, cross subsidisation of activities or low take up and hence may conceal the true magnitude of activities undertaken. It is our view that that the Corporation should be more concerned with a RSL's overall risk management strategy and the relative risks that each new project may pose to the RSL's total investment portfolio as the determining factor for undertaking diverse activities.
   
   
10. ACCA agrees that, when considering new applicants for registration (paragraph 4.17), the Corporation should expect an applicant to act mainly as a landlord, rather than a managing agent. We also believe that the definition of social housing should be wide enough, for registration purposes, to include those landlords who also specialise in tenants with special needs.
    
    
11. In the case of group structures (paragraph 4.18), the Corporation proposes to apply its policy and scope for regulation to the group as a whole (both registered and unregistered organisations) and to each registered entity within the group. We can see no basis for the assumption of regulatory authority over non registered entities within the group or the group as a whole. We also believe that subsidiary companies should be required to ensure that all payments to the parent entity are made at arm's length, so as not to be construed as preferential payments.
    
    
12. ACCA believes that when assessing whether a RSL has an investment in a special purpose vehicle or joint venture (paragraph 4.19) the Corporation should follow the control criteria laid out in FRS 2 Accounting for Subsidiary Undertakings, FRS 9 Accounting for Associates and Joint Ventures and FRS 5 Reporting the Substance of Transactions.
    

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