Press Release - Regulating Housing Associations’ Management of
Financial Risk
19 April 2001
The housing association sector and the Housing Corporation, the
sector’s regulator, are facing new and more complex financial
risks, according to the National Audit Office. The Housing
Corporation has started to reform the way in which it regulates
associations, known as Registered Social Landlords (RSLs), but
there is scope to improve regulation further.
According to a report today to Parliament by NAO head Sir John
Bourn, the Corporation and the sector have a good record in
avoiding RSL financial failure. No RSL has become bankrupt and no
tenants have lost their homes in the last 10 years. However, the
sector is under increasing financial pressure, and is expanding as
more properties are transferred from local authority ownership to
RSLs under the government’s Large Scale Voluntary Transfer (LSVT)
programme. Associations are also reorganising and diversifying into
other activities.
In response to these changes, the Corporation is adopting a new
approach to regulation – one which is less prescriptive and more
targeted on areas of greatest risk.
However, Sir John Bourn points out that the Housing Corporation
should take further steps to focus regulatory attention on
the key risks in the sector.
- The Corporation should pay close attention to how well RSLs
assess their risks, to ensure that they focus on the key risks and
have appropriate strategies for managing them.
- The Corporation is introducing a new less prescriptive
regulatory code. The Corporation will need to ensure that the high
standards of performance, probity and accountability expected of
the sector are not diluted under the new regulatory regime.
- The Corporation should revise the financial ratios that it uses
to identify RSLs most at risk, and devise new ones for assessing
the financial performance of RSLs created under the LSVT
programme.
Sir John also found that the Corporation needs to
improve its use of information as part of its
regulatory activities. Although it has a range of sources of
information about RSLs’ risks, it should turn this into a
comprehensive picture of financial risk in the sector, to help
focus its regulatory efforts and provide an overview on the
financial health of the sector. It also needs to gather additional
information to help it assess risks in individual RSLs and ensure
that RSLs provide timely information about their finances.
The Corporation has re-organised and secured additional staff
resources. However, it will continue to need to ensure that
it has sufficient staff, with the right skills and
experience to regulate the increasing financial complexity
of the sector.
Sir John also found that the Corporation should take
firmer action on the results of its work. The Corporation
should bring to RSLs’ attention underlying financial problems that
it has identified, so that RSLs may take action to prevent chronic
problems becoming more serious. Some cases of serious concern run
on for a long time. The Corporation's feedback to RSLs on the
results of its regulatory reviews needs to be improved. It should
also seek regular feedback from the sector on its performance as a
regulator.
Sir John Bourn said today:
"The Corporation has a good record in preventing serious
financial failure in the sector, but risk in the sector is
changing. Although the Corporation is reforming its approach, we
recommend further steps to protect the interests of taxpayers and
tenants."
Notes for Editors
Housing associations registered with the Housing Corporation own
or manage some 1.45 million homes, a third of the social housing
stock in England, housing some 3.2 million people. Over £24 billion
of public money has been invested in the sector and a further £1
billion a year is planned over the coming years. These
associations, known as Registered Social Landlords (RSLs), provide
housing at affordable rents for the homeless and people on low
income or with special needs. RSLs are responsible for managing the
variety of risks that they face, while the Corporation is
responsible for regulating how well they do this. The Corporation
has the complex task of seeking to ensure that tenants’ homes and
taxpayers’ investments are protected, while also avoiding
restriction on RSLs’ scope to engage in well-managed risk
taking.
Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 27/01
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