Company Secretary Update – February 2020

It’s a new year, with a new Company Secretary Update! We are covering lots of exciting content in this update, with our spotlight piece focusing on the Queen’s Speech over Christmas and the recommendations and commitments in relation to housing.

We also consider the new landlord payment system being tested by the Department for Work and Pensions (DWP), the impact of the last Brydon review, the implications of the National Security and Investment Bill, and the discontinuation of LIBOR. For those of you that are registered charities, or have registered charities in your wider group, we have included a section on serious incident reporting, safeguarding and the consultation on the Charity Commission governance code.

SPOTLIGHT – The Queen’s Speech

On 19 December, following the UK’s general election, the Queen’s Speech was released; detailing the Government’s legislative agenda for the new Parliamentary session. Whilst much of it, predictably, addressed the country’s Brexit strategy, there were a number of key announcements for the housing sector.

Building safety

Crucially, all of the recommendations made in Sir Martin Moore-Bick’s first-phase Grenfell Inquiry report will be implemented. Building safety laws are to be overhauled, increasing regulation and accountability for those responsible for safety throughout the lifecycle of high-rise developments. This commitment is bolstered by plans to provide residents with a stronger voice; redressing an imbalance which, for years, had left their safety concerns systematically ignored. The revised framework for high-rise safety intends to set a higher standard of compliance and responsibility to ensure that lessons are learned from the Grenfell tragedy, a priority that Government is eager to show is high on their agenda.

Fire safety, too, will see reform. The scope of the Regulatory Reform (Fire Safety) Order 2005 will be clarified to include external walls (including cladding) and fire doors of multiple occupancy homes. A transitional period will be in place to help building owners and fire services to prepare the infrastructure needed to ensure that people feel safe in their homes. 

Housing

The Queen’s Speech also delivered a number of welcome commitments for the sector that aim to improve access to housing for home-buyers and renters. This includes Government’s commitment to building at least one million more homes, which is to be buoyed by a reformed planning system and a £10bn Housing Infrastructure Fund to finance the infrastructure needed to support new homes.

Other standout pledges were:

• the renewal of the Affordable Homes Programme;
• bringing forward a Social Housing White Paper that will empower tenants and strengthen the supply of social housing;
• the launch of the First Homes consultation, a scheme designed to provide new homes to local first-time buyers and keyworkers at an up to 30% discount; including a mechanism that secures the discount for future generations;
• the introduction of a reformed shared ownership model; and
• the Conservatives’ follow up to their ‘Better Deal for Renters’ manifesto, a bill that will introduce lifetime deposits and abolish no-fault evictions. The plan intends to make the process of renting your home easier and cheaper, and block unscrupulous landlords from evicting tenants without good reason.

DWP Tests New Landlord Payment System

The DWP has confirmed that it is testing a new system for managed payments to landlords and changing the way the housing cost of Universal Credit (UC) is administered. The news came in the form of a letter from Neil Couling, the Senior Responsible Owner for UC. Under the new test system, social landlords will be paid the housing cost on the same monthly cycle as their tenants receive UC payments. If successful, the DWP intends to roll out the new system via the Landlord Portal early this year.

Currently, Social Landlords are paid in 13 instalments on a four-weekly cycle, yet the cost is deducted from the tenants’ claims, which are paid monthly. Consequently, landlords face one, four-week period a year where payments are not released, which may cause accounting errors. By aligning payments on a monthly basis, the new system will reduce the scope for such errors, saving landlords time and resources, easing their administrative burden and allowing them to manage and reconcile housing cost payments more easily.

The test system has been well received and demonstrates a willingness by the DWP to work constructively with Social Landlords to improve the UC service. Sue Ramsden, policy leader of the National Housing Federation (NHF), described the change as “welcome news”. The change is the first of the NHF’s ‘Six Asks’ to be realised. The Six Asks are a list of changes suggested by the NHS, in collaboration with Community Housing Cymru, the Northern Ireland Foundation of Housing Associations and the Scottish Federation of Housing Associations.

Final Brydon Review published

On 18 December 2019, the final independent Brydon Review was published. The review was in relation to the quality and effectiveness of audits. The overall theme that came out of the review was that Britain’s audit sector should be made separate from the accounting profession.

The review highlights the need for an urgent review to rebuild confidence in the sector following the collapse of major corporations such as Carillion and, more recently, Thomas Cook with the “Big Four” accounting firms facing criticism for their failure to scrutinise companies properly.

The final review contains 64 recommendations, which are primarily aimed at FTSE 350 companies. These include:

• better communication and transparency within the audit process;
• introduction of directors’ statements and reporting duties such as a corporate audit and assurance policy, resilience policy and public interest statement;
• measures for the prevention and detection of fraud; and
• obligations to acknowledge external signs of concern.

Although the majority of the proposals are for public companies, the proposals and recommendations could likely be adopted across the market in the future.

Discontinuation of London Inter-Bank Offered Rate (“LIBOR”)

The Financial Conduct Authority (FCA) announced that the interest rate benchmark of LIBOR is coming to an end by 2021. The FCA is concerned by the number of loans being put in place that mature after 2021 using LIBOR. To tackle this, the FCA has listed important practices that firms should consider during the transition to risk-fee-rates:

• set a target to stop lending under LIBOR by Q3 in 2020;
• consider new forward-looking rates, such as ‘SONIA’ or ‘RFRWG’;
• consider how to address issues created through ‘tough legacy’ contracts.

The Association for Financial Markets in Europe (AFME) produced a white paper on managing conduct and compliance risk involved in the transition of LIBOR to risk-fee-rates and how to mitigate these risks.

The paper breaks down the transition from LIBOR into three stages, project planning, project implementation and post-implication.

The white paper makes a number of recommendations, including:

• that firms review their structures and governance frameworks;
• that firms undertake a full review of record-keeping procedures to ensure continuing compliance;
• that there be a review of whether the risk-free-rates products are compliant under regulatory product governance; and
• ensuring business divisions are trained and aware of a firm’s legal and regulatory obligations.

Serious incident reporting for your charities

Given the Charity Commission’s strategic objective to hold charities to account, it is no surprise that further guidance has been published to assist charity trustees on when to make a serious incident report for incidents involving one of its’ “partners.”

A charity’s partners include any delivery partners, sub-contractors or a subsidiary trading company of the charity. Organisations that receive funding from the charity or those who are linked to the charity (such as through a federated structure) are also considered to be “partners” regardless of whether the partner organisation is in the UK or international.

When considering whether to report an incident relating to a charities’ partner, trustees should always consider the charity’s activities, size, funding and the nature of the relationship with the partner, as well as the nature and severity of the incident.

The following incidents are considered to have the highest risk of triggering the requirement to report a serious incident:

• an incident where the charity’s funds are involved;
• an incident where the charity’s staff or volunteers are involved;
• the incident occurs during an activity or programme which the charity funds, has responsibility for or is jointly involved with; and
• where the charity has the same branding as the partner.

Though every incident that falls within this category may not require reporting, charities must ensure that they consider how serious the incident is and how significant an impact the incident is likely to have on the charity, its operations, finances, people and/or reputation.

By way of example, where a charity has the same branding as its partner, there may be a significant impact on the reputation of the charity or public trust and confidence in it if the public cannot distinguish between the two organisations. This may mean that the incident needs to be reported, even if there is little or no impact on the charity’s activities, finances or people.

If an incident occurs for charities within a federated structure, it is only the local charity and the national/umbrella body that are expected to consider whether to report the incident.

The second category of incidents is those that do not involve the charity’s funds, brand or people, but may still have a significant impact on the charity. Incidents where the charity does not have close links to the partner are less likely to need to be reported, unless:

• it could cause material reputational damage to the charity;
• it raises material issues relating to where the partner is capable or suitable to work with the charity; or
• the incident triggers suspension or termination of the charity’s agreement or arrangement with the partner organisation.

If the incident does not involve the charity’s funds, brand or people and has little impact on the charity, it is less likely that the incident will need to be reported. Charities should still consider whether there are any areas for improvement or changes required to their policy or procedures in relation to such incidents.

Charities must ensure that they have robust policies in place to deal with their obligations to report a serious incident involving its’ partners. The Commission advised that it considers such reporting to be an assurance that charities are properly managing the consequences and risks from incidents in partner organisations.

Charities – Safeguarding portal

On 22 January 2020, the Government launched an online portal to help charities handle safeguarding concerns or allegations whether they are staff members volunteers or other people who come into contact with the charity through its work.

The portal offers charities a step-by-step tool to manage their safeguarding concerns regarding an employee or volunteer (including providing information about relevant people or agencies that can provide information and support). The online tool is designed to:

• help charities navigate the process of handling a safeguarding concern or allegation.
• help charities identify the right people and agencies to contact.
• enable users to print a record of the actions they have taken.
• provide links to helpful resources and advice.

Since the tool does not save any information entered online (though it can be printed) and will not refer a user’s concern to the relevant agency, it is a helpful tool for charities to check whether they are appropriately dealing with their concerns anonymously.

More information can be found here.

Charity Governance Code Consultation

The Charity Governance Code (the Code) is a sector-led tool for charities registered in England and Wales, though much of it will apply for not-for-profit organisations that deliver a public or community benefit in accordance with a social purpose. The Code exemplifies good governance and discusses recommended practice.

The Code itself discusses the following principles:

• Organisational purpose;
• Leadership;
• Integrity;
• Decision making, risk and control;
• Board effectiveness;
• Diversity; and
• Openness and accountability. 

Each principle in the Code has a brief description, a rationale, key outcomes (what you would expect to see if the principle were adopted) and recommended practice (what a charity might do to implement the principle).

The steering group for the Code has commenced the consultation process to undertake a light’ refresh’ of the Code in 2020 to make any urgent changes that are required, with more extensive changes to take place in 2023.

If you would like to respond to the consultation, you can find the details regarding how to do so here. The deadline for responses is 28 February 2020.

Be sure to keep an eye on our Newsroom for our article discussing our response to the consultation.

Increase of Regulator Fees

The Regulator of Social Housing (RSH) has recently written to all private registered providers of social housing (RPs) informing them that there has been an increase to the fee levels for the period 2020/21. From April 2020, there will be an increase in regulatory fees of 75p per unit. This increase will raise the total per-unit fee to £5.47, an uplift of 15%.

This increase will not apply to “small” RPs who have under 1000 units. The RSH has stated that this increase is to help the need for additional resources as the sector becomes more widely diverse, especially with the emergence of commercial for-profit providers.  A link to the RSH’s letter can be found here.    

Senior Managers & Compliance Regime (SMCR) – are you compliant?

The introduction of this regime (SMCR) on Monday 9 December 2019 created some consternation amongst many FCA regulated RPs when this regulatory change crept up on them.  This issue has highlighted the need for all organisations, including RPs, to monitor their activities on an ongoing basis and register with the FCA if they are undertaking ‘regulated activities’ in relation to consumer credit.  At a headline level, these activities typically include debt advice, debt counselling and credit information services. However, obligations under the regulations can be more onerous if RPs undertake activities such as lending (except at low or no interest) or regulated hire of equipment or credit broking.

Thankfully, there is an exemption available for charitable RPs that only provide limited debt counselling advice.  As not-for-profit debt advice bodies, they are not subject to the SMCR. Wider regulated activities require RPs (even if they have a “limited scope” permission) to comply with aspects of the SMCR including having at least one person registered with the FCA as an “Approved Person” and issuing statements of responsibilities. If an RP is required to have an FCA permission that is broader than “limited scope” it must ensure that consumer credit contracts comply with highly detailed FCA requirements.  Non-compliant contracts can only be enforced with court permission. Undertaking regulated activities outside the scope of FSMA permissions and regulation can result in civil liability and, in the extreme, criminal liability.

Many RPs have already checked their regulated status (usually categorised by the FCA as “limited scope” firms), but some have not yet done this.  Due to the complexity of the relevant regulations, we have developed a user-friendly template questionnaire with a small number of RP clients for distribution to internal departments within RPs so they can check whether any regulated activities are being carried out. 

If you would be interested in using this questionnaire to assess and verify your own status and compliance under the Regulations, then please contact Peter Hubbard or Jana Zachdeva for further details.  We have developed this work on a syndicated basis so that this can be a cost-effective exercise that RPs can undertake and re-visit every few years and if the scope of their activities changes.

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