Group structure – the right decision for your organisation?

The last few years have seen a continuation of the trend for housing associations to adopt group structures for operational and strategic reasons. For many registered providers this is a sensible move which is done for the right reasons. Often it takes account of the fact that a provider is going beyond its core housing functions to deliver everything from new homes for sale to care and support services.

 Becoming a group may also arise as part of a growth strategy, where other providers are brought into an organisation to achieve economies of scale, share skills and expertise or to  transform performance and service delivery. 

 However, despite the potential advantages, for a number of social housing landlords moving into a group has caused difficulties – sometimes of a regulatory nature.

 So what should providers be mindful of when contemplating a group structure? How do you ensure groups are governed well? And how do you maintain compliance with the requirements of the regulator?

 A crucial first question to answer is: what is and isn’t regulated once you have adopted a group structure? It’s this which I want to look at in the first of two blogs on group structures in the social housing sector.

 Many groups do have registered provider parents, usually because their level of diverse activity is quite small. As such, the risks in terms of the provider’s social housing assets is deemed to be minimal. But it is important to point out that adopting a group structure which includes unregulated activity  means that you must ensure that there is no distraction from maintaining compliance for your social housing assets. Your social housing business will always fall under the watchful eye of the Regulator of Social Housing who will want to know that you are viable, efficient and well-governed.

 The Regulator is concerned with ensuring the sector is providing affordable, decent homes which meet a range of needs - and that doesn’t change if your registered provider business suddenly becomes part of a group which includes a new house builder and a property maintenance company.

 However, there are subtle differences in how the Regulator approaches matters depending on the nature of your group structure.

 For example, if you own more than 1,000 social housing units, and are part of a group which has an RP parent, then compliance is assessed at the group level.

 If there is more than one RP in a group then each of them must comply with the Regulator’s standards. The regulator will then look at risks and exposure across the entire group as it makes an assessment of compliance in terms of the whole organisation.

 If on the other hand, the parent company in a group is unregistered, then the Regulator will limit its attention to the RP within the group. However, that still means it will ask the same rigorous questions to gain assurance around governance, risk, and viability exposures.

 The Regulator will also look at risk factors and stress testing in terms of cross group scenarios - even if not all the businesses in the group are registered providers of social housing.

 Financial Forecast Return (FFR) submissions to the Regulator are again done at the group level. If the parent is unregistered and there are a number of registered providers in the group then the FFR is done as one consolidated return for all the providers.

 So that’s the different approaches to regulation which the Regulator can take depending on which type of group structure you adopt.

 In my next blog I will be looking at meeting the requirements of the Regulator and my tips for success.