The Housing Corporation is considering forcing registered social landlords to meet new governance conditions before they can carry out certain financial transactions.
The suggested rules, drawn up by accountant KPMG at the corporation's request, aim to help RSLs manage risk by making their governance more robust.

KPMG's proposed rules for investments and hedging were unveiled at the National Housing Federation's finance conference last Thursday. But they may be modified according to the outcome of a consultation that will begin at the end of the year.

KPMG set out a list of governance safeguards that should be in place if an RSL wants to carry out basic transactions, such as changing its interest from a floating to a fixed rate. They would need to have a finance director and have separate staff working on deals and settlements.

For more complex deals, such as inflation-based swaps, an association would also need a treasury committee, a treasurer, separate front- and back-office work, a treasury policy, a segregated treasury system and an annual internal audit.

The proposals reflect the rising number of sophisticated and more risky transactions that RSLs are undertaking.

I was disappointed that we are talking about a year before the changes come in. There are fundamental weaknesses in the rules

Mark Jones, Derwent Housing Association

At the moment, simple transactions are more heavily regulated than many complex transactions agreed between RSLs and lenders.

Roger Booth, assistant director of financial appraisal at the Housing Corporation, said: "It's an anomalous situation and that's why we have to address the issue." He added that the suggestions came from KPMG and the Housing Corporation had no thoughts on them.

He said the arrangements would not take effect for several years so that they would not disrupt existing loan agreements.

However, some RSLs felt the issues were already covered by guidance from the Chartered Institute of Public Finance Accountants.

Source

Housing Today