Yr Is-bwyllgor ar y Bil Rheoleiddio Landlordiaid Cymdeithasol Cofrestredig (Cymru)

Sub-Committee on the Regulation of Registered Social Landlords (Wales) Bill

21/11/2017

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

David Melding AC Yn dirprwyo ar ran Mark Isherwood
Substitute for Mark Isherwood
Jane Hutt AC Yn dirprwyo ar ran David Rees
Substitute for David Rees
Steffan Lewis AC

Y rhai eraill a oedd yn bresennol

Others in Attendance

Ian Williams Dirprwy Gyfarwyddwr, Cartrefi a Lleoedd, Llywodraeth Cymru
Deputy Director, Homes and Places, Welsh Government
John Marr UK Finance
UK Finance
Katie Wilson Yr Adran Gwasanaethau Cyfreithiol, Llywodraeth Cymru
Legal Services, Welsh Government
Peter Hughes Cymdeithas Adeiladu Principality
Principality Building Society
Rebecca Evans AC Y Gweinidog Tai ac Adfywio
Minister for Housing and Regeneration

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Gemma Gifford Dirprwy Glerc
Deputy Clerk
Jennifer Cottle Cynghorydd Cyfreithiol
Legal Adviser
Jonathan Baxter Ymchwilydd
Researcher
Rhys Morgan Clerc
Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle y mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 09:30.

The meeting began at 09:30.

Ethol Cadeirydd Dros Dro
Election of Temporary Chair

Bore da—good morning. The Chair is unable to attend this morning's meeting. Therefore, in accordance with Standing Order 17.22, I call for nominations for the role of temporary Chair.

Are there any other nominations? I see that there aren't. I therefore declare that Steffan Lewis has been appointed temporary Chair for the duration of today's meeting.

1. Cyflwyniadau, ymddiheuriadau a dirprwyon
1. Introductions, Apologies and Substitutions

Bore da. I welcome Members to the meeting of the Sub-committee on the Regulation of Registered Social Landlords (Wales) Bill. The meeting is bilingual and headsets are provided for simultaneous translation from Welsh to English. Can I ask everyone to please switch off mobile phones and any other electronic devices that may interfere with broadcasting equipment? There are no scheduled fire alarms, so, in the event of a fire alarm, please follow the ushers.

Apologies have been received today from David Rees and Mark Isherwood. David Melding is attending as a substitute for Mark Isherwood, and Jane Hutt is attending as a substitute for David Rees.

2. Y Bil Rheoleiddio Landlordiaid Cymdeithasol Cofrestredig (Cymru)—Sesiwn dystiolaeth 5
2. Regulation of Registered Social Landlords (Wales) Bill—Evidence session 5

Can I thank our witnesses this morning for attending, and can I ask you to introduce yourselves for the record, please?

Thank you. Good morning. I'm John Marr from UK Finance. We're the trade association that represents funders to the RSL sector across the UK, including here in Wales. And I work in the policy area, as part of that organisation.

I'm Peter Hughes. I'm the managing director for the commercial division of Principality Building Society. Within that, we manage lending to social housing landlords in Wales.

Thank you very much. Can I just begin by asking whether you agree with the general principles of the Bill?

I think the short answer to that question is 'yes, we do'. Clearly, the stated purpose of the Bill is to enable the Office for National Statistics to review the classification that it made back in 2016, with a view to pushing that back to the private classification. Having reviewed the proposals in the Bill, we can see that they are fundamentally consistent with arrangements that have been introduced elsewhere. And you will have seen the ONS making its announcement in respect of the sector in England last week, which has effectively achieved a reversal of its previous classification, back to private. So, on the basis that the measures are consistent, I think that we would be confident in saying that, yes, we do agree with the principles of this Bill.

Just to add, from a lender perspective, the principles of the Bill have been well trailed over a number of months, and I think it's fair to say that no lenders have dissented from the general principles, or the direction of travel on this. So, again, the shorter answer would be 'yes'.

Thank you. And have you had discussions with the Welsh Government regarding the reclassification, and even with the wider RSL sector?

Yes, we have. We've actually benefited from very positive and constructive engagement with officials here in Wales as part of the thinking behind the development of the current measures. That has taken place over a number of months since the ONS made its decision, and through that positive work we have actually got to a position where we are now quite comfortable with the legislation that we see before us. So, in that respect, it has been good, positive and constructive engagement, for which we're grateful.

Again, I'd endorse that. So, for a number of years now, we've had a quarterly Welsh Government—formerly CML—UK trade association liaison meeting, and this has been a keynote agenda item during the course of the last several months. So, I would echo what John says. I think the engagement has been very, very constructive and collaborative, but, equally, challenging where required.

Thank you for that. Whilst I appreciate that you agree with the general principles of the Bill, I just wondered whether you believe that it's desirable to see reduced influence from central and local government in this sector. Because this is, effectively, deregulation, in order to meet the reclassification criteria, isn't it?

I wouldn't necessarily say it was deregulation. I think it's probably more a case of regulatory reform—there's a slight difference in emphasis there. The purpose is to make sure that regulation continues to be in place, and that it continues to be effective and proportionate and that the regulator has viable powers of intervention that they are able to deploy when necessary. So, coming back to your question—'Is it desirable to see reduced public control?'—I think the desire is to ensure that there is appropriate control and that that continues to be proportionate. The challenge, I think, with dealing with the ONS issues is to strike the right balance between removing some of the control factors that the ONS identified as points of concern and making sure that there is sufficient ability still on the part of the regulator to do its job effectively. I think this legislation strikes that balance quite well.

09:35

I think, again, to add to that, almost concurrently we've seen the revised framework for the regulation of the sector come into play. We've seen a good degree of robustness within that and certainly we would view that as considerably ahead of where we were, if we go back a decade or so, in terms of lenders' confidence in regulation. So, I'm very happy to side with John's views on that. I think it's very much a proportionate approach to regulation.

Are there any lessons, do you think, from the experience in England in 2015 and are such lessons reflected in the Welsh Bill?

I think the lesson to take from the experience in England—and bearing in mind the ONS announcements last week—is that clearly the measures that were taken forward there were fundamentally the right ones to achieve the desired outcome. If you look at the detailed areas of the measures taken—so, issues around disposal consents and consents to constitutional changes and mergers, some changes to intervention powers, changes around local authority appointments and the like—these have all been sensitively balanced, and I think that if we look at the position for the Bill here in Wales, we see that the balance is similarly sensitive.

If we think, again, about what's happened in England since the implementation of some of the regulations that have brought about deregulation there, we've seen the Homes and Communities Agency as the social housing regulator in England providing a raft of guidance and support for housing associations in the new deregulated world. I think it might be appropriate for the regulator here, once this Bill is through, assuming it does go through, to think about what support they might need to provide for RSLs in Wales to make sure that everything proceeds as intended in the new world, where regulation is slightly different than it was before.

I've nothing to add to that. My colleague has been at the sharp end of a lot of those negotiations in England, so it would be amiss of me to comment on that, but we've been following it closely and I echo the sentiment.

Thanks, Chair. You said at the start of this session that you agree with the principle of the Bill. I think all political parties in the Assembly agree with the principle. Of course, there are Governments of different persuasions throughout the UK that are doing a similar thing and they're from different parties. So, I don't think there's any partisanship in this, but I just want to tease out some of the detail of this so that we don't have any unintended consequences, I suppose, which is what I'm really concerned about. Would you say that the Bill does just what is necessary to address the ONS decision or does it go a bit further than that? Is it just sufficient to meet the requirements that are likely now to be made by the ONS, or do you think it goes further in terms of deregulation?

I think our view, having looked at it in detail, as drafted currently, is that seems to go as far as is necessary. We do have one slight area of concern, and that relates to the regulation-making power towards the end of the Bill, which, if you like, is a catch-all—

There is a slight concern about that, but otherwise it seems to be on the mark.

So, does that mean that, in terms of the actions that are likely to be taken by any responsible Government regulating the sector, it's not going to be much diminished, or do you think that the culture change is quite a lot because of the change in law to address the ONS's point?

09:40

If I look at it purely through the lens of a lender, we need to understand, or be satisfied, that there are sufficient checks and balances in the system. Answering the question in a slightly different way, we are very happy that there are, through the revised changes—the changes to the Bill, but in addition to that the emerging framework, which we've now seen sort of live in action—we're very comfortable with that.

A couple of weeks ago, we committed another £50 million as the Principality to lend to the RSL sector in Wales. We wouldn't have done that if we weren't entirely satisfied with the quality of the credit risk but also our confidence in the regulation framework. So, hopefully that speaks volumes in terms of our belief in, and the credibility of, the system.

So, you remain confident that the new regulatory system will be able to deliver similar outputs, then, to the old regime. Mr Marr started this session by saying that he didn't really think it was fair to describe what's happening as deregulation but more as regulatory reform. You know, if I'm applying due diligence to that statement, I suppose I would ask, 'Is this Bill desirable, regardless of what ONS has done?' I mean, if it's true reform, presumably it is, but is that our position or are we really moving in this direction because of an outside factor rather than one we've determined to strengthen regulation?

Well, I think we are where we are. One of the strengths of regulation is that it evolves continuously in response to new challenges. We can see that, in response to the ONS challenge, it has moved and it has evolved. That being said, there was already work in progress to strengthen the regulatory framework. There's been a change in respect of the new approach to judgments, which is something that we very much welcome and have worked with Government to achieve over a number of months. So, there was already a positive trajectory of change, and then we had the ONS challenge, and we have worked with you as Government to respond effectively to that. So, I think the story of regulation is one of constant change and adaptation. There is that adaptation to the current challenges. I'm sure there will be challenges in the future and that those will be responded to in much the same way.

I understand that position—that, obviously, any healthy system adapts and needs that flexibility. But the core of this, which is basically to shift from consent to notification—I mean, it is unlikely that we would have done this without the ONS decision, isn't it? So, from where I'm coming from, I would then say that we need to look at the checks and balances very carefully because, you know, this is less reform but a required change to meet international accountancy standards and, if we didn't do that, there would be real implications about our ability to provide the necessary finance for this sector. Is that description a fair one, do you think, of where we are in the public arena on this issue?

It's a slightly hypothetical scenario in that we can't unpick the ONS decision and know where we might have been. I guess, to pick up on John's comments, things do evolve and if we look at, for example, stock transfer, large-scale voluntary transfer and the maturity of that model, originally, going back 10 or 11 years, you had the presumption of local authority representation on that, but clearly those organisations have developed to a different stage of maturity and, potentially, through that maturity, need to find their own feet. Therefore, whilst I guess the ONS piece might have been a prompt or an intervention to cause that, I'm not sure that it's unhelpful that we've got to where we are, because regulation does need to keep pace and I think that's an example of where something potentially is a helpful evolution.

09:45

If I can pick up on Peter's mention of checks and balances there in the context, say, of consents, so, what we're seeing now is a shift from regulatory consent to a disposal of assets to a system of notification. Although, in some respects, that might mean that there could be a loss of some regulatory intelligence, in that the association would require to seek consent actively, through, I think, co-regulation and the fact that there is a positive and a strong relationship between a regulatory manager and the board concerned, there should still be, I think, an ability through our notification system to achieve the required level of intelligence and understanding about what's happening in our business.

Moody's said that these changes inevitably would lead to a reduction in lender confidence. Is that a fair judgment?

Well, I think—. We're aware of the views Moody's have expressed. Equally, I guess, seeing is believing. Looking at the participation of some of the large institutions subsequent to the emergence of the ONS and the likely direction of travel in terms of regulation, there doesn't appear to have been any significant dampening down in terms of investor appetite to support the sector. So, whilst—. And, as a banker, we've felt some of the winds of the Moody's and other pronouncements over the last few years as well, and these are things that do ebb and flow. I think that's something we'd have to acknowledge. Yes, it has changed, but the real test is investor appetite. In the short term, certainly, there hasn't been any dampening of that.

Okay. Let me move on a bit, because—. I think it's important that we establish that this—. From my point of view, anyway, I think the specifics of the reform probably wouldn't have been taken up unless we had the sword of Damocles hanging over us from the ONS, but we do, and we have to live with it. Certainly, any loss of investment that would have resulted from this area being on the public sector borrowing books would have been a much more adverse outcome than some of the challenges we may be facing in the practicalities of how we manage the new regulatory system.

So, let me come on to some of the specifics, then. Indeed, you do mention them. I think, in terms of disposals, you think particular caution needs to be exercised there, and I just wonder what you think the current risk levels are. Because, when we had the housing associations in, and their trade body, they basically said, 'Well, there's very little land that's ever disposed of, really. We don't do much of that, and it's low risk anyway'. Is that a fair description, or do you think there is potential risk here that will need more perhaps careful monitoring as we shift to a notification from a consent model?

I think, on the move from consent to notification, as I mentioned, there is a potential that there could be a reduction or a slight loss of regulatory intelligence. As I said, the co-regulatory relationship, I hope, would be strong enough between the regulatory manager and the regulated organisation to ensure that that wasn't the case. So, I think it's around the extent of intelligence that might be lost; I think we would just need to keep an eye on that. It could well be that, as part of the shift to notification after the event, rather than consent prior to, there might be a need to consider some ramping up, for example, of associations' self-assessment regime to strengthen that, because that, I think, could help to plug the gap. Taking it further forward into lender risk committees, I think, overall, what we might see is a position where lenders themselves ramp up their own due diligence of a funding proposition, recognising that some of the things that the regulator had been able to do previously, it wouldn't necessarily be able to do in the same way going forward.

09:50

Yes. I'd endorse that. In terms of the lending approach, we don't subrogate our lending assessment to the regulation; it's our own job to check whether we're happy with the quality of the credit, and we have a number of checks and balances ourselves, from the annual accounts to the management accounts to covenant compliance to our lending documentation. So, there's a whole raft of additional aspects that give us comfort, plus regular dialogue with executive and, where appropriate, with board members. Lenders will have ramped up their own view of governance—so, governance has been a huge area of focus, because, generally, that tends to be the early indicator of failure, when governance slippage starts. So, you'll see a lot more rigour in terms of how banks view the quality of the boards, and through that comes transparency, reporting and, inevitably, some sort of trust in the organisations to make the right calls. I'm not uncomfortable with that latitude being granted, because we are satisfied that it will be exercised diligently by the RSLs.

And these RSLs, then—you take me very efficiently on to the next point—in terms of their own rigour and self-evaluation, which is important in a shift of this kind to notification, their own skill set on their boards is going to be a key area, because, their boards, the structures, are obviously going to change, because of the new arrangements for public sector representation. So, do you recommend that they pay particular attention to how they are going to recruit that sort of skill set to a healthy board that can self-evaluate effectively?

I think that's been a direction of travel for several years now, and revised code of governance, tenure of board members, requirement for diversity, or an emphasis on diversity. So, we've seen that ramped up, I would say, quite considerably. I think it can be a challenge in certain areas in terms of recruitment, but, nevertheless, that's where we always start. Our lending assessment doesn't really start with the numbers; it starts with the quality of the board, it starts with the quality of the executive, because, the best balance sheet in the world, if it's got the wrong people as custodians of it, is potentially a recipe for difficulty. So, I don't think we've ever underestimated the impact of governance.

Yes, indeed, and, just picking up on Peter's point there, I'm thinking about some of the changes perhaps to local authority representation. The important point, I think, is to ensure that housing associations have the ability to and are able to attract the right skills mix that they need for their organisation at its particular time, and recognising what it seeks to achieve.

Mr Hughes, you alluded to the new regulatory framework, which is obviously important and has very recently been updated. Is that integrated enough into this Bill? Are you confident that what the regulatory framework says has the same authority as a Bill or an enactment under the Bill, for instance?

Yes. I'm not sure whether we would view it as integrated into the Bill or whether it's something we have to be satisfied with as something that kind of works hand in hand. So, the short answer is, 'Yes, we are'. Again, I go back—. Our relationship with Welsh Government as lender goes back over 15 years, and so the quality of conversations and the dialogue and understanding of respective positions is light years ahead of where it was 15 years ago. So, I think some considerable progress has been made. I think transparency—. We hear regularly the sector talk about increased teeth being shown by regulators, and we, as you'd expect, as a lender, are encouraged by that.

Yes, I think the reference in the Bill to failure—I can't remember quite exactly how it's worded, but failure to meet the requirements of an enactment—. Clearly, our understanding is that that definition embraces requirements under the regulatory framework and the associated performance standards. And, although it's not necessarily spelled out as such on the face of the Bill, if you delve into the behind-the-scenes explanatory notes, it is referenced there.

One of the points that I made in our submission was that it might be useful, notwithstanding that, to consider making that link more explicit on the face of the Bill. I think lenders and funders who are familiar with the sector would probably be able to, as part of their own due diligence and assessment back in the office, work through the link between that particular phrase and the regulatory framework, but there is a possibility, I think, that less familiar investors, distant investors, who might be less able to delve into the detail, might not find that link and could be uncertain as to whether or not that definition in the Bill equates to a failure to meet the regulatory standards.

09:55

That's helpful, thank you. Finally from me—but this is an important area—section 18 powers. So, if ONS come back and say, 'Well, you know, x, y, z is still not sufficient; there needs to be further change', you have said they are currently cast too widely and you suggested possibly balancing that with a sunset clause. Do you want to explain any further your concerns there in making that comment on the current draft of the Bill?

Yes. I think, if we go back to the basic principles of the Bill, which are intended to address the control issues and the concerns that we're all familiar with that have been expressed by the ONS—so, it's a fairly tightly focused Bill intended to achieve a very specific outcome—we've already last week seen the ONS take a view that equivalent measures in England are sufficient for it to reverse its classification and return the housing association sector there back to private. There's already recently been an interim statement from the ONS about this specific Bill, with a fairly positive indication that, if it were to proceed pretty much as is, that would be sufficient for them to do the same thing in Wales and to return the sector's private classification.

The regulation-making power, the catch-all at the end—I can entirely see the rationale for it from the Government's perspective, but I think for it to be left entirely open-ended, certainly given the recent announcements from the ONS in England and the interim statement here in Wales, would probably be a little bit unnecessary, and by leaving the ability to make regulations completely open I think there is a risk that funders, particularly those who, as I say, are distant and possibly less familiar with the sector, might see that as an open-ended risk, because this is an issue that we would like to see closed down. This Bill is intended to do that. So, I think any closure should be achieved sooner rather than later, and, given the pace that the ONS moved at last week, I think we should be reasonably confident in an expectation that, once this legislation is enacted here in Wales, a similarly swift decision would be made to restore the private classification to the sector here. So, for a regulation-making power to be left open significantly longer than that, I think, would be rather unnecessary.

I think that's very helpful to us because that is a clear, constructive criticism.

In Scotland, the Scottish Government has, I think, tried to address that in the—I don't know which section of their Bill deals with all this, but they've said that any changes that are then required for Ministers to implement to the legislation, if they affected anything fundamental like the constitution, they would then have a duty to consult on those changes. Would that balance it or do you feel a sunset clause would answer it and that would be that? The Scottish—they're clearly trying to mitigate this concern that may be there from lenders, especially the ones less experienced of the sector.

Yes, we've expressed pretty much the same concern in Scotland. An opportunity for consultation and engagement is always welcome on proposals that could be fundamental to the sector. But, that being said, again, coming back to the points that this legislation here in Wales, and the equivalent legislation in Scotland, is intended to be very closely focused, I do think that a completely open-ended power might be inappropriate and could cause unnecessary uncertainty for those who are less familiar with the sector.

10:00

Just following up a few questions in relation to the impact and implications for stakeholders, you've said in your evidence to us that you feel that you benefited from constructive engagement in terms of the ONS classification. Do you feel there's been sufficient consultation with lenders in terms of developing this Bill?

Yes, I would say so. Peter?

Yes, we both endorse that. It's been well trailed through various liaison committees, and we've been happy to input throughout, and we're very happy with the pace and nature of the challenge and consultation.

Good. Following on from one point that David made about skill sets and local authority engagement and influence over RSLs, particularly thinking about the changes, which actually already exist—there's a whole variation in terms of local authority representation on boards. Have you any views about that? Local authorities are stakeholders and, clearly, they have a strategic role in the communities that they serve, but, clearly, this is crucial in terms of public sector influence and reference.

We see that as an evolution, having been party to several stock transfers in Wales. I think it is an inherent conflict potential where you have a local authority member on the board of an RSL. Insofar as a board director's primary duty is to represent the body—the company, which would be the RSL—I think, potentially, where you have 33 per cent participants from each sector, it is a potential source of conflict. I'm not saying there ever has been any conflict, but it can be challenging for a local authority member representing, all of a sudden, a very different organisation and potentially the priorities seeming to be somewhat different. However, I think, as the model has evolved, and as local authorities' needs are exercised, they have a more strategic role in developing housing, housing agenda and planning. I don't see any change. The numbers might have changed, but I don't think the tensions and the requirements have. From what we see, it's a very collaborative relationship between the RSL sector and the local authority sector. They need to continue to work hand in hand. So, I see it as an evolution.

There's obviously some different patterns emerging. I'm interested in the fact that the Chartered Institute of Housing evidence is showing that, for example, Merthyr Valleys Homes has got a large percentage of tenant involvement and less local authority, but also employee—a mutual model, of course. But you're seeing those developments across Wales.

Indeed. That was quite a leap of faith for the lenders in the case of Merthyr because it was only the second mutual sort of co-operative model. I think there had previously been one in the north-west. Again, it was around trusting the constitutional bodies to make the right decisions in the interests of the organisation, and for the lenders to be satisfied that there were sufficient checks and balances. Actually, based on what we see, it's been really successful. I think there's greater engagement and collaboration, and people acting in the best interests of the organisation. So, yes, that was a challenge, but lenders are flexible and provide enough checks and balances and then we're happy to support them.

Of course, customer engagement is currently very good evidence in terms of management and that kind of experience, as well as skill set. If there is any amendment to the Bill to increase tenant involvement, for example by way of consultation prior to any changes, where notification to Welsh Ministers was required, would this be seen as a good or bad thing from the perspective of lenders?

I think, on that issue, that would—. Coming back again to the very focused purpose of the Bill, which is intended to address ONS concerns and ONS issues, but to go no further, I think, to amend the Bill to incorporate, for example, different arrangements or different provisions about tenant ballots and tenant consultation, would be to go beyond what's necessary, and in that respect, in our view, would probably be an area of concern.

That being said, the Bill replicates the arrangements that are already in place, and we know that, in the current arrangements, the regulator is already able, through its powers, to provide direction and guidance about some of those specific issues around tenant engagement and tenant consultation. So, the issue is already addressed I think, given that the Bill replicates what's already there. So, it shouldn't, I would've hoped, be a concern in the new world after enactment of the legislation. But I think if we were to start to lift the bonnet and add more things in than go beyond the pure ONS issues, then that could well be an issue of concern.

10:05

Just to add there, in terms of the tenant emphasis, particularly when we're looking at the regulatory framework, I don't think there's any doubt at all that the tenant focus of the regulation and the priority—the emphasis of the organisations in terms of the tenant-first approach—I don't see any of that being dialled down through the legislation.

Yes, absolutely. There's been a lot of work done on developing the framework to bring it to a very robust and inclusive status. So, we're quite confident that tenants are, rightly, at the heart of regulation. This Bill replicates the arrangements for tenant engagement that already exist, and I think there's no reason to consider that those arrangements are insufficient. And on that basis, adding more into the Bill I think would be unnecessary, but that's our view.

Thank you. Just one point in terms of lenders: do you think that the Bill should make specific provision for consultation with lenders before certain events? We discussed risks earlier on, but, for example, prior to disposals or constitutional changes or mergers, should there be specific provision for consultation with lenders?

I think there are probably enough checks and balances in lender documentation. I think, also, for there to be an introduction into any regulatory framework, it would potentially involve the lender, almost being in a shadow directorship role if it had to make calls on various strategies or decisions. Actually, the lender's role will revert to more of, 'Well, they're proposing a merger, they're proposing to do something—how does that affect my risk profile?' and they would be able to make that call through the checks and balances through the relationship and the facility documentation. So, I wouldn't say that any more of that needs to be enshrined into the legal framework, because, as I say, I think the implications of shadow directorship—. And, I'm sure people wouldn't be particularly keen on being told by the lenders how to run their businesses. That would certainly be my experience.

Yes. We certainly wouldn't be asking for any special arrangements in respect of consultation with lenders as part of the structure of the Bill, and, as Peter already said, through existing loan documents and the requirements specified in those, there would be an element of engagement and consultation, say, for instance, on a merger proposition, in any event. So, those issues are covered elsewhere, I think.

Thank you very much. Can I thank you for your evidence today, and for being so kind as to allow us another nine minutes or so of questions? A copy of the transcript will be sent to you. Please check it for factual inaccuracies and get back to us if there are any. Diolch yn fawr iawn i chi.

3. Cynnig o dan Reol Sefydlog 17.42(vi) i benderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 4 a 6 o'r cyfarfod hwn a chyfarfodydd yr is-bwyllgor ar 5 a 12 Rhagfyr
3. Motion under Standing Order 17.42(vi) to resolve to exclude the public for items 4 and 6 of this meeting and for the sub-committee's meetings on 5 December and 12 December

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 4 a 6, ac o gyfarfodydd yr is-bwyllgor ar 5 a 12 Rhagfyr 2017, yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public for items 4 and 6 of this meeting, and from the sub-committee's meetings on 5 and 12 December 2017, in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

We move to point 3 of today's agenda: a motion under Standing Order 17.42 to move into private session for items 4 and 6 of today's meeting and for the sub-committee's scheduled meetings on 5 and 12 December. Are Members content? Thank you.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:09.

Motion agreed.

The public part of the meeting ended at 10:09.

Ailymgynullodd y pwyllgor yn gyhoeddus am 10:27.

The committee reconvened in public at 10:27.

10:25
5. Y Bil Rheoleiddio Landlordiaid Cymdeithasol Cofrestredig (Cymru)—Sesiwn dystiolaeth 6
5. Regulation of Registered Social Landlords (Wales) Bill—Evidence session 6

Bore da, a chroeso i gyfarfod y pwyllgor.

Good morning, and welcome to the committee meeting.

I just wanted to start, Minister—if you could introduce yourself and your officials for the record, please.

Yes. Rebecca Evans, Minister for Housing and Regeneration. I'm here with Ian Williams, deputy director of homes and places, and Katie Wilson, Welsh Government lawyer. 

Thank you very much. I'll just kick off by asking: we had interesting evidence from the Tenant Participation Advisory Service Cymru that you may have seen, and, on the back of that evidence, I wondered if you gave any consideration to using this Bill to consolidate existing housing legislation—not a great repeal Bill, but a great consolidation Bill of sorts.

Yes, I'm familiar with the evidence from UK Finance, and it's something I think that TPAS have also raised, certainly in their written evidence to committee. Consolidating legislation wasn't something that we thought of in terms of taking this piece of legislation forward. It is a very specific piece of legislation to meet a specific need. We've worked under quite tight timescales in order to develop this piece of legislation, and, as I mentioned to the Constitutional and Legislative Affairs Committee yesterday, we're doing so within some derogation timescales provided to us by the Treasury as well. So, it's not something that we've looked at. This is a specific piece of legislation for a purpose. 

Do you think it's something you might consider for the future, given the bitty nature of legislation in this field—that it might be worth while consolidating them in one Bill or Act in the future?

Well, we'll certainly be keen to take the committee's views on this particular issue. Certainly, if you were to make recommendations, we would be considering those, when you make your report. 

Thank you very much. I think it is interesting to look at the TPAS Cymru response, which is very supportive, but obviously looking for an opportunity to enhance the role of tenants. What opportunity do you think this Bill can give to enhance the role of tenants within the regulatory process?

Well, this Bill, in and of itself, doesn't address the role of tenants specifically or provide them with any greater or lesser influence than they already have at the moment. But the boards of all RSLs will continue to be regulated and accountable to tenants and to Welsh Ministers through the regulatory framework. The regulatory framework was brought into force within a year of this date [correction: The regulatory framework was introduced on 1 January 2017], and I think already it does provide tenants with strengthened voices in terms of their homes and the way in which they are managed. And, of course, tenants are central to the regulation of housing in Wales, and the framework makes that clear by putting some very specific expectations on RSLs in terms of how they can demonstrate that tenants are involved in shaping the services and the decisions that affect them, and how the services need to be high quality and need to be improving as well.

So, what's different in the new framework is that we've ensured that involving tenants is one of those 10 performance standards that the RSLs are required to meet under the Housing Act 1996, and they'll be subject to continuous regulatory assessment. 

You mentioned TPAS Cymru—they have a really important role in terms of doing some work for Welsh Government through Hearing the Tenants Voice in the Regulation of Housing Associations in Wales work. That's a project that is designed to gather the views and opinions and experiences of tenants across Wales. It gives us a sense check to understand what the RSLs are telling us is happening on the ground and what the experience of tenants is on the ground. And it also provides us with a strong evidence base and a voice to listen to were we to make any further changes. 

I'd just add as well that the performance standards will be subject to a review next year, and obviously tenants and other stakeholders will be central to that view in terms of listening, again, to their experiences and their views on what could be improved.

Finally, the Regulatory Board for Wales has commissioned a review of tenant engagement in Wales, and that will aim to set out a vision for tenant involvement for the future. That's a really important piece of work. That's something, again, I would welcome committee's views on, or individual Assembly Members' views on, because I'm very keen that that piece of work listens to as wide a range of voices as possible. 

10:30

I think the specific performance standard is very important, isn't it, in terms of tenant involvement? That's obviously subject to enhancing it if we feel there are ways in which we could improve in terms of the regulatory framework. I don't know if you've given consideration to changing the guidance that accompanies the standard to ensure that tenants are consulted before certain events, for example prior to disposals of land or mergers.   

Welsh Government already has the power to issue regulatory guidance, and that's usually done through circulars. We have done so in the past on matters such as including the requirement for tenant consultation on certain types of disposals. Perhaps Ian will be able to give us some examples there. 

Well, of course, guidance is critical. If the standards are the performance that we expect of RSLs, guidance is how we expect them to do it. And we have guidance on tenant consultation. We believe that tenants are at the heart of regulation and should be consulted. We'd be happy to share any draft guidance that would be specifically related to this Bill with the committee, specifically on the consultation of tenants with regard to either disposals or mergers. 

I think one of the things—[Inaudible.]—taking from lenders and UK Finance is that— . Tenants could have an increasingly strong role to play, and it's important that we recognise their experience as well as their skill set. So, that's something that will have to be reflected, and your thematic review will be important. But also, just in terms of the point about your powers to issue guidance, is that going to be an issue at all with ONS in terms of indication of public sector control?  

We don't believe that's likely to be a concern for the ONS, and we have confidence there because ONS have reviewed our Bill and said that were it to be given Royal Assent in its current form, then they would be content that it meets their requirements.  

Guidance exists—[Inaudible.]—specfically regarding this area, and they've passed the test, for want of a better phrase. 

On that point that you'd rely on guidance in terms of tenants' views and participation in disposal or major change in terms of the constitution, did you look at the Scottish model, where, if the constitution is proposed to be changed radically, then the consent of tenants is required? Obviously, there is some precedent there in terms of stock transfers for that principle. So, did you look at that in the Scottish principle?

10:35

We've worked very closely with our Scottish counterparts. The purpose of this Bill is not to change the rights that tenants have, previous to, and after the Bill. In Scotland, they currently have that position where they have, effectively, a veto on a merger, and they will have that after the Bill. In Wales, we do not currently have that power, and we don't expect to have that power after this Bill either. 

—historical situation. You did not want to use this Bill to improve tenants' rights, for instance.

This Bill is about a specific issue concerning the challenge that ONS has put to us, and we want the sector to be able to continue to borrow, and therefore that's what it's focused on. 

I think I'm going to have to correct you: it's about the regulation of this sector, which is about to change considerably. That's what it's about. The reason we're doing it is that there's an ONS decision in terms of accountancy practices, but they're not the legislative body. And I just want to get a sense of whether you did look at the Scottish situation as a way of improving, though, in fairness, you've said that you didn't want to go any further than the status quo and have left it at that. I don't know if you want to add to that, Minister?

I would only add—in the evidence that you will have heard from Carl Sargeant when he introduced the Bill, he was clear that, actually, at the time, this was not something that Welsh Government would have planned on doing. It certainly wasn't something that was part of our programme, if you like, in terms of improving quality of housing and access to housing. However, it is a necessary piece of work. But, alongside that, that doesn't mean that we're not interested in what more we can do in terms of giving tenants rights and hearing the voice of tenants, and that's why we have that piece of work that the Regulatory Board for Wales has commissioned in terms of a review, which will set out a vision for tenants' rights. So, there is huge opportunity there to see what we can do to improve the rights and the voice of tenants, and I'm keen to hear views from all sides on that. 

Thank you for that. We had UK Finance in earlier, and they did question whether there is some ambiguity around the status of the regulatory framework. They thought that if you read it closely, the justified inference was that it is an enactment, but they would like that to be made more specific, perhaps on the face of the Bill. Do you think—well, first of all, can we just check that the regulatory framework is going to be integrated into the Bill and considered an enactment? If you could put that on the record, I think it helps us. 

Yes. The performance standards, as they are set out in the regulatory framework, are made under the Housing Act, and the guidance or rules that relate to any of those performance standards can be issued under the Act as well. So, it is part of the regulatory framework. And a failure to comply with those performance standards, and the guidance or the rules issued under those provisions, would be a failure to comply with the requirement made under an enactment, but perhaps Katie could elaborate. 

Just to add, I agree with that, and that we also tried to make it clear in the explanatory notes. It does specifically say that standards issued under section 33A, and guidance under section 33B, would be considered to be a requirement imposed under an enactment. So, we have also tried to ensure that that's clear through the explanatory notes. 

Okay. And when there is, or if there is a failure, and you appoint managers to go in and sort out a housing association that's not in compliance with the framework, at the moment, it seems quite open-ended, and by implication, the managers could be in place after the infraction has been corrected. And this could cause disquiet to the financial sector that is seeking to invest in social housing because of the level of Government interference that could result from managers remaining in place beyond the immediate period when they were correcting a clear fault in the practice of an RSL. 

10:40

I would say that statutory action is always the last resort, which is taken when all other regulatory steps have failed. And to my knowledge, those powers have only been used once to this date, and I think that demonstrates the effectiveness of the regulatory regime. So, before exercising any of those statutory intervention powers, the regulation team's initial response will be to work alongside the RSLs, to try and explore how those problems and the issues could be resolved on a voluntary basis. So, those powers have only been used once, to my knowledge.

That's correct. And the standards make it clear about the areas where we might take action—far clearer than it was in the past, when it was misconduct and mismanagement, which are far broader thresholds to be achieved.

Can I just add, in terms of—? In order to make a determination, if there was to be—if that's what you're suggesting—when someone's appointed to correct a failure, the existing provisions in relation to those still continue to apply. So, people are appointed in such circumstances, for such a period, and on such terms, as the Welsh Ministers may specify. And there may be quite difficult practical circumstances if you were to try and have an automatic termination. You'd have to have a judgment of when the failure had been corrected. It might be practical to make some transition period. I think that having that type of provision on the face of the Bill wouldn't necessarily be helpful in practice. Obviously, the Welsh Ministers will act reasonably in the terms of the appointment anyway.

But you could use language like 'reasonable action limited to the infraction', and there could be some form of test to stop the possibility. I mean, this is UK Finance raising this point, it's not me just being mischievous—that you're not leaving someone in there well beyond the immediate time that would be reasonably required to correct an infraction, and then ensure that there's a robust system in place, presumably, so it's not repeated. And, at the minute, you've gone the opposite direction, having no real limitation in law, though I acknowledge that, in practice, you can point to your record, but we're talking about the law, and what might happen in the future, aren't we?

I think the point that Ian made earlier is we are maintaining the status quo apart from the changes that are required by the ONS. And the status quo is that people can be appointed on such terms and on such conditions as the Welsh Ministers consider appropriate. And, obviously, the Welsh Ministers will always act reasonably in the exercise of their powers.

Okay. And you're happy with this approach to champion—I was going to say mediocrity, but that would be—[Laughter.]—champion the status quo. 

I think, in terms of what we set out to do with this particular legislation, in the sense that it is specific legislation to meet those specific issues that were raised by the ONS, then I am satisfied that that's the approach that we should take—

That's fair enough. And you're accountable for it, and you've answered the question.

The financial sector is concerned that, in moving from a consent regime to a notification one, there would be a loss of regulatory intelligence—this is basically that instead of being able to take action prior to an event, it would now have to be afterwards. And this could have an effect on the sector, and, indeed, Moody's has said that this is the nub of the matter, that it does lead to looser regulation, which may have an impact on investment levels. So, what is the Welsh—? And this is inevitable, really, if you're going to try and meet the requirements, as we understand them, of the ONS. I realise that this is actually a view you're compelled to take. So, given this shift in the regulatory framework, how are you working with the financial sector to reassure them in terms of how the system will now operate?

Well, our overall system has regulatory managers, regulation managers, who have very tight relationships, in the sense that they attend boards and view the behaviours and actions of boards of RSLs very closely. And so, in terms of intelligence, I think we have the best system in the UK, because, whilst we do have rather a lot of RSLs, we do have that relationship and the closeness to what they're doing. They still have to notify of any action that they take and, therefore, we will have all the intelligence on everything that they do, and we'll scrutinise and consider any actions they do in terms of disposals.

I take the point about Moody's and I'm aware of that, but I'd also say that just very recently, one of the northern RSLs went out to the capital markets to borrow and in their assessment—. It was Moody's or S&P that said that the regulatory framework as it is—. You had to take it in the round because this Bill comes with the new regulatory framework and the standards that come with it, and they considered that to be worthy of an increase of one rating or perhaps two ratings, which is an awful lot of money in terms of borrowing in the capital markets, as you know. So, I'm very content that, taken in the round, this Bill plus the regulatory framework that we're able to put in on the back of it, and the guidance that we'll put in as a consequence of it, provide a far more rigorous regulatory overall framework. The proof is in the pudding. We're seeing a lot of investors wanting to invest in social landlords and social landlord debt, so the market out there is pretty much in perfect information and they're liking what they're seeing.

10:45

Minister, are you confident that there won't be a loss of confidence in the sector, which has to be very carefully managed?

No, I think that Welsh Government is clear that we do take a partnership approach and that we do strive to have positive engagement and positive relationships with all of the important partners in terms of providing social housing.

Just before we move on, I wonder if I could go back just to the issue of tenants very briefly. Do you think—and I completely accept that this isn't legislation that the Welsh Government would have wanted to have brought forward, and this is as a consequence of the ONS classification—but is there an issue in terms of those local authorities where there were referenda for housing stock transfers to occur, from local authorities to RSLs, that somehow this Bill undermines the terms and the understanding of how tenants voted in those referenda in order to transfer the housing stock? Because there were pretty clear commitments made to tenants about the statutory protections that people have and the role that they would have in the governance of their housing and, of course, the safeguard of local authority in all of them as well. I just wonder whether you are satisfied that the terms and the spirit of those referenda have been upheld even if this Bill is enacted.

Yes. This Bill doesn't diminish the rights of tenants in any way at all and those commitments that were made to tenants when large-scale voluntary transfer occurred still stand.

As you recall, the big commitments around the Welsh housing quality standard absolutely still exist, and around affordable rent, and the quality of the services and the maintenance of their properties—those still absolutely exist and will be scrutinised and regulated in exactly the same way as they have been over the last few years.

Just moving on to local authority influence, it would be helpful if you could clarify the position where you might have local authority councillors or staff sitting on RSL boards—whether they would be affected by the 24 per cent limit if they weren't actually appointed to the board by the local authorities.

They will only be affected by the 24 per cent limit if they are local government appointees. Councillors can sit on boards as independent members in their own right and we're confident that this doesn't create an issue for us because, again, it's clear on the Bill, and the ONS have given us their view that our Bill does meet their requirements.

It would be up to the board to decide, as an independent board, what skills they require to take the business forward over the next few years. So, of course, an individual would be standing as an individual, even if they were a member of a council. However, it would be for that board to decide if their skills were still applicable and useful.

It's interesting to see whether the reduction of local authority representation on boards could actually lead to more tenant engagement and tenant influence. I was interested in the Merthyr Valleys Homes mutual model, for example, where you've got a high level already of tenant representation on the board and, indeed, less of local authority, but also employee representation. But do you think this—? TPAS obviously sees this as an opportunity as well for more tenant influence and engagement at board level.

10:50

Yes, it's certainly—. Well, it will be for the board to decide. However, there's absolutely an opportunity there for increased numbers of tenants on boards. There are members to come off to meet that 24 per cent limit who are local government appointees—or nominees, I should say.

I'd like to move on to section 18 powers. We heard from the previous witnesses, from UK Finance, that they thought they were too open-ended and that this might, and I quote, lead funders to see this as 'an open-ended risk', and they suggest these powers should be limited by a sunset clause. What are your views on their fear that there is an open-ended risk, potentially, and whether a sunset clause would be appropriate?

Well, this is a discussion that we started to have yesterday in the Constitutional and Legislative Affairs Committee. Those section 18 powers, perhaps we should have used a different title within the Bill, but they're certainly consequential, or powers to make consequential amendments, or to amend the Bill in a way that is appropriate in consequence of any provision made, or for the purpose of giving full effect to that Bill.

We've had some discussions about some examples that might help in terms of understanding the kind of scope of those powers, and Katie will be able to talk about that.

As you say, it's just intended to be—well, it is a consequential amendment power. So, it's just to tidy up other legislation, really, to make sure that the provisions in the Bill have effect. So, for example, the land registration rules, I think, at the moment require a copy of Welsh Ministers' consent under section 9 to be included in certain registrations. So, it'll only be used to remove that reference or to make appropriate amendments to pieces of legislation like that. It's only intention is as a consequential amendment power.

And I think some of the concern might have arisen from the fact that Scotland does have consequential powers within their Bills, but the powers that they have, or the power to make additional amendments to a Bill in a Scottish Bill, are much wider than those in our particular Bill.

So, to clarify, could the section 18 powers be used to respond to a further requirement from ONS for reform?

No, because it could only be used to make amendments considered appropriate in consequence of provision made by this Bill, or for the purpose of giving full effect to this Bill or Act. So, it will be, for example, the changing of 'consent' to 'notification', anything that needs to be done as a result of that change, which is what the Bill does, that will be what it will be used for. Obviously, we're introducing this Bill because of the ONS, but that's not what the Bill does; the Bill makes amendments to the regulatory regime, and it's only a consequence of those amendments that this power will be able to be used for.

And so, where in the Bill would you have the powers—? Say the ONS came back now and said, 'Well, actually, we think 15 per cent is the required level in terms of local authority representation', you'd use other regulatory powers for that.

Well, we are content that the ONS have reviewed the Bill as it is and that we've got the answer, so to speak, to the question of what level of control will tip it over the edge. So, we don't anticipate that any changes will need to be made, which is why we haven't made any provision such as that.

But in terms of, you know, for the future, in four or five years, that would be the approach that would be taken; it wouldn't be under section 18 powers.

No, we wouldn't be able to do it like that.

Okay, if there are no further questions from Members, thank you, the three of you, for your evidence today. As usual, you will receive a copy of the transcript to check for factual inaccuracies. Please do so, and let us know of any.

Diolch yn fawr iawn i'r tri ohonoch chi. 

Thank you to the three of you. 

Daeth rhan gyhoeddus y cyfarfod i ben am 10:54.

The public part of the meeting ended at 10:54.