Criteria for the registration of new social landlords in Wales

Section 5 of the Housing Act 1996 provides that the Welsh Ministers shall establish (and may from time to time vary) the criteria which should be satisfied by a body seeking registration as a social landlord. When deciding whether to register the body, the Welsh Ministers shall have regard to whether those criteria are met.

The application process will be a 2-stage process both to support an organisation applying and to manage the workload of the regulation team with applications which have little merit/ viability. Initially, organisations applying for registration must be able to demonstrate that their proposals meet the statutory eligibility requirements (Appendix A).

Once the Regulation Team has determined they meet those requirements, applicants will be assessed against the registration criteria that the regulator has set (pursuant to section 5 of the HA 1996) which primarily concern an applicant’s financial viability, constitution and other management arrangements as set out in the Regulatory Standards.

The application process will be iterative, and applicants will be given the opportunity to provide additional information or clarifications during the application process. The assessment process will have due regard to the Welsh Government’s policy and public duties including the provisions of the Freedom of Information Act, GDPR and the Public Sector Equality duty.

At the point of application, the applicant will be required to explain its compliance with the statutory regulatory standards in relation to Governance and Financial Viability – Regulatory Standard (RS)1, RS2 and RS7. At the point of registration, evidence of compliance with these standards and how the Board is assured of that compliance will be required.

At the point of application, the applicant must evidence it has management arrangements in place which will provide the skills and capacity to comply with the remainder of the regulatory standards RS3,4,5,6,8,9 from the point of registration.

At the point of application, the applicant must evidence its proposals are supported by key stakeholders including any relevant local authorities and local communities in the areas it intends operating in.

If the applicant is a subsidiary, its governance arrangements with the parent organisation, including controls and funding must be disclosed. 

On receipt of all the required information, the regulation team will complete its assessment having regard to whether the information demonstrates the registration criteria is met. A recommendation will then be set out in advice to the portfolio minister with responsibility for housing.

To support an application, the applicant must demonstrate that plans are deliverable, any risks to delivery of the plans are identified and managed and assumptions about key financial measures are reasonable.

To assess compliance with the eligibility and registration criteria, applicants will be required to complete application forms which, as well as general details relating to the organisation, will include providing the information to support an application set out at Appendix B. The information requested will need to evidence compliance with Governance and risk management and financial viability as set out in the registration criteria. The assessment will also require a suite of additional documents including a business plan, loan and funding arrangements, and so on, to be provided.

Once registered, all Registered Social Landlords (RSLs) must comply with the Regulatory Standards and will be subject to regulatory oversight. The standards and oversight arrangements are set out in The Regulatory Framework for Welsh Registered Social Landlords. Registered bodies are listed in the published Register maintained by the regulator.

Housing Act 1996 - eligibility requirements

Part 1 of the Housing Act 1996 (“HA 1996”) provides for the registration of RSLs. In order to be eligible for registration in Wales, a social landlord must be:

1. A registered charity which is a housing association; 
2. A society that is registered under the Co-operative and Community Benefit Societies Act 2014 and which satisfy the requirements in section 2(2) of the HA 1996; or 
3. A company that satisfies certain conditions as set out in section 2(2) of the HA 1996.

Section 1A of the HA 1996 provides that a ‘Welsh body’ is eligible for registration as a social landlord if it is:

• a registered charity whose registered address is in Wales; 
• a registered society whose registered office is in Wales; or 
• a company which has its registered office in Wales. 

The requirements for registered societies and companies in section 2(2) are that:

• the body must be principally concerned with Welsh housing (i.e. the housing it owns must be all or mainly in Wales, or its activities must be mainly in respect of Wales). 
• the body must be non-profit making; and, 
• a purpose of the body must be the provision, construction, improvement or management of houses for letting, houses for occupation by the body’s members or hostels. In relation to this requirement, the registered society or company is permitted to have other purposes too provided they fall within the categories specified in section 2(4). 

The other purposes permitted by section 2(4) are, in summary: 

• providing land, amenities or services, or providing, or improving buildings, for its residents; 
• acquiring, improving, or converting houses for sale, lease or shared ownership; 
• constructing houses for shared ownership; 
• managing other houses which are let or blocks of flats; 
• providing services for owners or occupiers of houses; 
• providing advice and services in respect of housing associations.

There are also several Orders, made under section 2 of HA 1996 which specify additional permissible purposes or objects: 

• Social Landlords (Permissible Additional Purposes or Objects) Order 1996; 
• Social Landlords (Additional Purposes or Objects) Order 1999; and 
• Social Landlords (Additional Purposes or Objects) (No 2) Order 1999. 

Which cover, in summary:

• disposing of properties at less than market value to residents;
• acquiring, improving or converting for equity percentage arrangements;
• enabling or assisting residents to acquire houses, and provide grants;
• providing loans secured by mortgages to assist persons to acquire houses for their own occupation;
• providing amenities or services for residents in flats;
• carrying out regeneration activities for the benefit of persons who are otherwise benefitting from the activities of the RSL.

Information required to support an application for registration

Compliance with Regulatory Standard (RS) 1 and RS2 - Governance and Risk Management

• Full details of the board and executive structure and the relative roles and responsibilities of these parties (including profiles of board and executive members).
• Full details of its shareholding membership (or equivalent) including any chain in ownership up to and including the ultimate owners/parent company
• How the roles, responsibilities and accountabilities for the applicant’s board, chair and chief executive have been established (including how they are reflected in the applicant’s governing documents)
• How the board has reviewed the skills it has available to it and why it considers these are adequate to discharge its responsibilities fully.
• Probity arrangements established, how they are reflected in the governing documents and why the board considers these are appropriate. This must include details of how it ensures that it does not enter into arrangements that would inappropriately advance the interests of third parties, or which the regulator might reasonably conclude would do so.
• Does the applicant trade with, or procure services from, an organisation in which shareholders or directors of the applicant have an interest or does it plan to do so and does the applicant have any loans from shareholders or directors or does it plan to do so? Has the applicant leased or bought property from its shareholders or directors? Does it plan to do so? A narrative outlining the basis on which it entered into any of the arrangements disclosed in answer to these questions and how its board is satisfied that these arrangements are appropriate will also be required. Additionally, if the applicant has not entered into any such arrangements but plans to do so, it must outline the basis on which it will enter into any of the arrangements and how the board would be satisfied that the arrangements were appropriate.
• Outline how conflicts of interest will be managed, particularly in respect of any links to third parties as in previous requirement how this is reflected in its governing document.
• Details of the code of governance adopted by the applicant and why the board considers this to be appropriate. Details will be required on how compliance with its adopted code of governance been assessed, a copy of the assessment and an explanation of any areas of non-compliance and why the applicant’s board is satisfied non-compliance is appropriate. Where actions are planned to address any identified non-compliance with the code of governance, the applicant should explain the non-compliance, what action is planned and the timescale for implementation.
• A description of the applicant’s approach to risk management – identification, monitoring and mitigation including details of the formal Board assurance framework or similar.
• A description of the applicant’s identified key risks, why they are the key risks and the arrangements for the monitoring and mitigation of such risks.
• Details of any plans to contract out services (for example corporate, repairs, maintenance and/or housing management services) that it will rely on to comply with the regulatory standards, setting out what those services are and how its board has assurance that the third party will not jeopardise its ability to meet these standards.

Compliance with RS7 – Financial Planning/Viability

• Details of its financial forecasts for at least the next five years. This should include a Statement of Comprehensive Income (formerly Income and Expenditure), Cash Flow Forecast and Statement of Financial Position Forecast (formerly Balance Sheet Forecast). This must include a clear explanation of any assumptions made within the forecasts and how the Board is assured the assumptions are reasonable and appropriate (with supporting documentation)
• Document(s), approved by the Board, which identify risks that could impact the applicant’s financial forecasts, and the steps it takes (or will take) to monitor and minimise the chances of the risk occurring.
• An explanation on how its Board monitors and gains assurance that the controls the applicant has identified to minimise the risks occurring are in place and operating as intended. Copies of supporting documents that allowed the applicant’s Board to gain assurance that these are operating as intended must also be provided.
• Details of the stress testing undertaken on the risks identified. This should include multi-variable/ combined stress tests, and be undertaken against lenders’ financial covenants, where debt is in place or expected. This should include details of mitigations in response to the stress testing and the strategies in place to deal with the scenarios identified
• A narrative on the risks, or combination of risks, that would need to materialise to make the applicant financially unviable
• How the applicant’s Board has gained assurance that the applicant will have sufficient liquidity in the short, medium, and longer-term including supporting evidence which has allowed the Board to gain assurance that the key categories of cash income will be forthcoming.
• Details on how the Board has used and proposes to use the record of assets and liabilities in relation to its management of risk.
• Details on how applicant’s Board assured itself that any links to other organisations or non-social housing activity do not put its social housing assets at undue risk
• A description on how the Board gained assurance that the list of assets and liabilities is up to date and accurate
• Key policies and procedures that are in place which set out the rules for financial transactions e.g. financial procedures and provide a copy of these in support of the application
• Details of how the Board monitors the applicant’s financial performance supported by the most recent document taken to Board reporting the applicant’s financial performance and the document at the last financial year end reporting financial performance against budget, where the applicant has been operating for more than a year
• Details on how the Board gains assurance that the monitoring systems in place are effective. Applicants must provide the evidence that has allowed its Board to conclude that it has satisfactory assurance including on the controls the applicant has in place to ensure all funds are spent appropriately are operating as intended

Details will also be required in respect of Group structure/subsidiary arrangements and how the lines of sight/control are in place, and the final section of the application form will require details of the management arrangements in place to be able to comply with each of the other regulatory standards – RS 3,4,5,6,8 and 9.

Additional documents

Applicants will also need to provide the following documents to be submitted in addition to the details required provided on the application form. However, we recognise the nature of supporting documentation will vary from applicant to applicant. For example, for new start up applicants, historic financial statements will not be available, and for those seeking grant or loan funding, it may not be committed at the point of application and may be contingent on registration. 

The regulator will therefore consider the range of evidence submitted within the context of the organisation making the application.

• a business plan setting out the applicant’s objectives, how it intends to deliver them and how it will monitor its progress towards them
• financial forecasts of income and expenditure, financial position (formerly balance sheet) and cash flow for at least the next five years
• a narrative that sets out the rationale and evidence for the assumptions used in the financial forecasts
• the applicant’s assessment of the key risks to the delivery of its objectives and how it intends to manage those risks
• stress testing to show the impact of a range of adverse changes in the key assumptions made in the financial forecasts reflecting the applicant’s key risks. This should include multi-variable/combined stress tests, and be tested against lenders’ financial covenants, where debt is in place or expected
• two years’ financial statements and most recent management accounts where these are available
• evidence as to the actual and assumed levels of rent and rent increases and the board’s consideration of its statutory and regulatory requirements in respect of rents
• evidence to support the accuracy of assumptions made around housing benefit payable for the accommodation to be provided
• where financial viability is dependent upon receipt of loan finance, reasonable evidence that the funds will be available for drawdown at the time that they are required and on terms consistent with the financial plan and risk assessment,
• where the financial plans are reliant upon grant funding, evidence of the funding, or progress towards obtaining funding and any conditions or requirements which may apply
• a copy of the applicant’s assessment against its chosen Code of Governance
• a copy of the decision-making schedules that set out how decisions are made
• a copy of the financial policies that set out how financial performance is monitored and controlled