Could your group structure do with a spring clean?

This is a regulatory requirement of the Regulator of Social Housing (RSH), featuring heavily in its latest sector risk profile. It is also a key requirement of the National Housing Federation’s (NHF) Code of Governance 2020. This requires RPs to have a clear rationale for why their group structure exists, what function they fulfil and crucially, how they interact with regulated entities in the group. The flow of risk and how this is managed must be clear and transparent, as must their governance. Entities that are not being used properly can create and import risks and those which are not needed create bureaucratic drag.

Group structures: The regulatory requirements

The RSH’s Governance and Financial Viability Standard (GFVS) and the NHF’s Code of Governance 2020 (the Code of Governance) require RPs to ensure that unregulated parts of their group do not compromise the regulated parts’ ability to meet the RSH’s regulatory standards. This means RPs must establish a robust internal controls framework and ensure that their boards are fully aware of how risks and financial exposures flow between the regulated and unregulated parts of the group. Boards need to understand how a failure in one part of the group could impact other entities, especially where there may be recourse to social housing assets. The management of risk must be both clear and transparent and the governance arrangements must reflect this clarity, ensuring that the group structure does not pose undue risk to compliance or operational integrity. The Code of Governance requires that RP boards ‘regularly review’ whether their group structures are fit for purpose. This means at least once every three years.

Furthermore, the RSH requires RP boards to be able to explain the rationale behind their group structure and demonstrate how it aligns with the group’s strategic objectives, as stipulated by the GFVS and the Value for Money Standard (the VFM Standard). This is tested regularly with board members as part of an inspection. It is a timely reminder that the RSH’s VFM Standard requires that all RPs undertake:

‘regular and appropriate consideration by the board of potential value for money gains – this must include full consideration of costs and benefits of alternative commercial, organisational and delivery structures’.

To meet expectations around VFM, as well as to manage contractor risk and the implications of adverse performance (on an RP’s reputation and customer satisfaction), many RPs are increasingly bringing repairs and maintenance services in-house. This could see contracts with an existing contractor terminated and a transfer of the contractor’s staff into the RP (either directly or into a subsidiary). Where a service has previously sat elsewhere in the group (for example a DLO housed in a subsidiary), this being collapsed into the RP itself. This trend towards rationalising corporate structures helps to reduce the bureaucratic burden associated with complex group structures and improve oversight, assurance and control, but it can also mean risks are pooled within an RP or RPs.

As part of effective risk mitigation, RPs must maintain an accurate and up-to-date assets and liabilities register, ensuring quick access to crucial information regarding housing assets and security positions to aid in decision-making and risk management. Where assets are housed in different places within the group, there must be transparency and consistency of understanding about what these assets are, where liabilities sit within the group (and how they may be shared, purposefully or inadvertently) amongst group members, especially the RPs.

However, in some cases, it is appropriate to maintain separate legal entities for specific purposes. They may be needed because a charitable RP wishes to carry out activities that are non-charitable trading (and therefore it cannot carry out itself). They also may be required for non-core but still valuable functions (e.g, community support or care services), or to house joint ventures and collaborations with other organisations, or where there are good reasons for separating some of the stock and keeping it apart from the main portfolio (e.g, a PFI project, or an Almshouse). As long as these structures are properly understood, regularly reviewed, correctly used, efficiently and effectively managed and the relevant boards have appropriate oversight and assurance of their compliance, this is acceptable – recommended, even – from a governance perspective.

Group structure review

A group structure review can take many forms. The scope and depth of the process will vary significantly depending on the circumstances driving the review and the organisation’s objectives. For some RPs, a group structure review may be a routine governance exercise, undertaken periodically to ensure ongoing compliance with best practice. In these cases, the review process may be relatively straightforward, consisting of an internal self-assessment that evaluates whether the structure remains necessary and fit for purpose. The output of such a review is likely to be a board paper or report summarising the findings and outlining any necessary actions, such as minor governance refinements or efficiency improvements, or for a group member to be wound up (for example if it is not being used, or is used for a project that is coming to an end).

However, where an organisation conducts a review in response to a specific adverse event or issue, the process is likely to be more extensive. If a subsidiary is failing, if financial pressures necessitate a restructuring, or if the Regulator has raised concerns, a more comprehensive strategic review may be required. This could involve a full governance audit, financial analysis, risk assessment and regulatory compliance check, often with input from external advisors such as financial or legal consultants.

The size and complexity of the group structure will also inform the level of detail required. A relatively simple structure, such as a single RP parent with a small number of subsidiaries, can often be reviewed with relative ease, allowing for a quicker and more streamlined process. In contrast, larger, multi-tiered, or commercially active group structures demand a more extensive and detailed approach. This is particularly true where the parent entity is not an RP, or where there are multiple subsidiaries engaged in different forms of activity, such as development, care services, or joint ventures. The more complex the structure, the greater the need to carefully assess governance arrangements, financial interdependencies and risk exposure.

The nature and timing of previous reviews can influence the approach required. If a comprehensive review has recently taken place, leading to significant changes such as rationalisation or simplification, subsequent reviews may not need to be as detailed. In these cases, the focus may be on monitoring the impact of past changes rather than undertaking another major restructuring. Conversely, if a review has not been conducted for several years, or if external conditions have changed dramatically, such as regulatory shifts, financial pressures, or sector-wide challenges, then a more substantial reassessment may be warranted.

Finally, on all but the most straightforward of mergers, a group structure review will be required within the medium term. This may be where an RP has joined an existing group as a subsidiary with the intention of merging into the main stock-holder, or it may simply be because each of the merging entities has its own VAT-recovery development subsidiary and outright sale subsidiary which means the combined group has ended up with duplicates it does not need.

Benefits of a group structure review

In addition to being a regulatory requirement, regular group structure reviews offer significant strategic and operational benefits for RPs. They provide an opportunity to assess whether the structure remains fit for purpose, ensuring that resources are being used effectively, risks are well managed and the organisation is aligned with its long-term objectives.

One of the most immediate benefits of a review is the ability to promote financial efficiency. Many organisations find that maintaining multiple subsidiaries comes with a substantial cost, particularly in governance and executive oversight. When the combined expenses of board remuneration, executive leadership and governance arrangements are fully calculated, some organisations discover that the cost of running each subsidiary could be upwards of £200,000 per entity. Also, in larger groups, transfer pricing regulations may mean that intra-group services need to be charged within group members at more than cost, which is an unnecessary (and potentially avoidable) expense. A thorough review can highlight opportunities for rationalisation or streamlining, helping to reduce unnecessary expenditure while ensuring that each part of the group structure adds value to the organisation’s overall mission.

Beyond financial considerations, a clear and effective structure is also essential for risk management. The RSH has consistently indicated that complexity inherently carries risk, particularly where multiple legal entities create financial, governance and operational interdependencies. A group structure review allows organisations to assess where vulnerabilities may lie, such as subsidiaries operating outside the core housing remit, reliance on commercial income, or inefficient oversight arrangements. By proactively identifying and mitigating risks, an organisation can strengthen resilience and ensure that it remains well-positioned to withstand external pressures.

Challenges of a group structure review

Conducting a group structure review can present significant challenges for an RP. Internally, these reviews require a considerable draw on resources, demanding time and expertise from senior leadership, governance teams and finance professionals, some of whom might already feel stretched managing existing day-to-day operations. Team capacity is a constant balancing act, as RPs navigate an incredibly difficult landscape marked by rising costs, regulatory scrutiny and a changing regulatory framework. Prioritising a structural review can be difficult when urgent issues such as cybersecurity threats, compliance requirements and other service delivery pressures compete for attention. Despite the challenges, undertaking these reviews is crucial to ensuring long-term resilience, efficiency and good governance, but it requires careful planning and stakeholder management.

Where a group structure review is part of the integration of a merged organisation into a wider group after a period of investment, it will be dependent on the groundwork having been done so that finances and HR management structures are already harmonious and there has been sufficient investment made to create a cultural cushion, all of which makes the final steps to close down a group member as straightforward as possible.

Despite the challenges of conducting a review, a well-structured group enhances strategic alignment and service delivery to residents. Reviewing structures can enable the organisation to refocus on core priorities, such as improving disrepair services, investing in housing stock and new supply and strengthening tenant support mechanisms. Ensuring that the group structure is aligned with strategic goals also allows leadership teams to make better-informed decisions, ensuring that governance arrangements actively support, rather than obstruct, the delivery of key objectives.

For more information on group structure reviews please contact Catherine Simpson.

• Share this