The current package of deregulatory measures goes with the grain of how regulation has changed over the last six years. But it is worth setting it in a wider context.
There have already been more dramatic changes than the removal of consent powers. In 2008 the 60+ Housing Corporation circulars were swept away. This was not because they were ill conceived but because it was not appropriate for the regulator to dictate how every aspect of running a business should be undertaken. In 2011, inspection and most of consumer regulation was removed.
Our disposal and constitutional consent powers have served us well, but we will continue to deliver our fundamental objectives, with a different set of tools, once legislation is passed which changes some of our powers. The narrowing of our appointment powers to the specific circumstances in which we might use them is a clarification rather than a reduction. Consents work has been a useful can opener for the regulator on numerous occasions, but for many associations it can feel administrative rather than judgemental. It has also enabled us to keep an eye on some of the more exotic financial products which have emerged in the sector and it has let us provide some challenge to the occasional vanity driven merger proposal. There are certainly more than a handful of associations that have good reason to be grateful for the damper we applied to their plans to take on significant RPI +1% linked debt. But overall, the ratio of administrative work to useful regulatory insights has not always been positive.
However any cost/benefit analysis of the removal of the consents regime is not straightforward. For example, the proposed removal of the constraint on the disposal of tenanted stock opens up some very significant issues for boards to grapple with and poses some interesting questions for the regulator. This constraint on tenanted disposals has helped us meet our statutory object to ensure that tenants have an appropriate degree of protection. How the sector and the regulator respond to this change will be closely watched.
For us, the most significant aspect of the deregulatory package currently under consideration in the Bill is the updating of our moratorium powers by the introduction of special administration. No one is 'too big to fail'; but there will be an increasing number that are too big to be swallowed whole by someone else. Break up proposals that are in the best interests of creditors, tenants and the taxpayer cannot always be developed in 28 days. Nor should they be vulnerable to an investor that specializes in distress scenarios that has picked up bonds in the secondary market. We have made detailed plans for multiple and complex distress situations and are far more confident that these will be successful with the backup of a special administration regime. We have been in favour for some time of gaining a special administration regime, and if that had been offered independently of the need to satisfy ONS, but had involved a quid pro quo of losing consents then we would still have opted for it.
The changes to the consents regime will deliver one of the big asks the sector has often made to government, in return for which it has promised greater efficiency and more new homes. I think the sector will need to reflect on how it delivers on these promises and how it will be judged by government and others at a time of significant housing need.
The main focus of regulation continues to be on governance and financial viability. Our ability to do this in a more challenging external environment has been getting better and better. Three elements have been critical to this:
- Strengthening our standards (in particular stress testing and asset & liability registers)
- Quadrupling our senior management and strong management development focus
- Bringing in our new three part methodology of quarterly surveys, annual stability checks and periodic in depth assessments.
But we are far from complacent. We will continue to evolve our approach - not just to reflect the loss of consent powers - but to reflect the increasing diversity of the sector and its housing markets. Increased commercialisation and market exposure will also require different approaches. We are determined to stay ahead of the curve and make sure that regulation is fit for the new world rather than have to play catch up.
An early candidate for review is the distinction we make between small associations (those with fewer than 1,000 homes) and larger associations. Smaller associations are generally (but not always) more rescuable. But they can get themselves into very difficult circumstances. We are acutely conscious of our need to be proportionate but may need to keep a closer eye on some of them. By the same token, it may not be proportionate (or a good use of resources) for us to subject all larger associations to the full suite of regulatory scrutiny. It may be appropriate to have intermediate degrees of regulation that are more suited to those who are in the larger category but otherwise relatively low risk.
Another candidate for review is the framework of standards. These were initially developed by the TSA in a very different world. While we made important changes to the governance and viability standard two years ago, everything else was left untouched. We now have a substantially changed operating environment and a changed suite of regulatory powers. It makes sense to stand back and take a fresh look. As before, we would want to do this in a collaborative way that meets our statutory objectives, investor interests and fully recognises the diversity of the sector. We would look for opportunities to simplify and clarify as well as to anticipate how we will need to regulate over the next five years.