In recent years the creation of housing association group structures has been a popular answer to a number of the policy and practical issues which housing associations face. More than 70% of stock within the housing association sector is owned by associations which are part of some sort of group structure. The range of structures is wide and the reasons for their development are many and varied ranging from taxation benefits, to stock transfer and efficiency savings.

The more recent changes in the Housing Corporation’s investment agenda, taken together with the efficiency drive following Gershon, are further stimulating the move towards group structures. The Housing Corporation has clarified its approach by issuing Regulatory Good Practice Note 11 (GPN11). Compliance with the note is a requirement for any new group structure or an existing one which is to be changed.

GPN11 mainly restates general principles which the Housing Corporation already applied in its consideration and regulation of groups. For some time, the basis of regulation has been that the parent of the group must be in a position to control the subsidiaries. As a result regulation of groups focuses attention on the parent and pays less direct attention to subsidiaries.

This approach is reflected in the Corporation’s stated approach to supervision: if a member of a group gets into difficulties, and the Corporation decides to intervene, it is the whole group that will be placed under supervision as the Corporation holds the parent responsible for the subsidiary. The Corporation expects the parent to take steps to identify and resolve any problems within the group. This means that it is a fundamental part of the Housing Corporation’s appraisal of any application for registration of a group that it is clear that the parent has the power to take those steps in respect of each subsidiary within the group.

As a result, the Corporation is particularly concerned with the governance arrangements within the group. These must demonstrate that the parent has ultimate control over the subsidiaries and this must be clearly reflected in the governing instrument of each subsidiary and in the operational agreements between the parent and the subsidiaries.