Managing risk is vital if registered providers are to maintain financial viability and successfully meet future economic challenges.
This was the message from Jonathan Walters, Deputy Director of the Regulatory Operations for the HCA, when he addressed delegates at the recent Social Housing Finance Conference.
He highlighted the need for Boards to understand the risks in their business model and ensure they understand the deals they enter into. He also made clear that the Regulator had an important role in monitoring exposures carefully and intervening where necessary in order to maintain confidence in the sector.
He gave the example of how in December 2008, some registered providers experienced significant collateral calls against derivatives, having taken on risks they did not fully understand and that more recently, Vestia, the Dutch housing cooperative which ran into financial difficulties earlier this year.
In his speech Sourcing Resources, Taking Opportunities, Jonathan Walters highlighted how Vestia, which ran its treasury as a profit centre needed to post collateral of two and a half billion Euros on interest rate swaps, resulting in raising new loan facilities and assets sales.
He emphasised that Providers have now increased awareness of the volatility in collateral calls and improved reporting. In addition, the Regulator now closely monitors this risk with the Quarterly Survey which includes an analysis of derivatives, mark to market and collateral. Derivatives are also part of the viability review.
Jonathan Walters said:
The HCA took responsibility for the regulation of Social Housing Providers in England as of 1st April."Overall, housing association Boards need to ensure that their governance and risk control remain robust to manage these issues, and the new challenges of raising finance as Treasury management becomes more complex. Boards need to understand and take control of Treasury management ensuring they have the right skills and experience to do so.
"Boards will need to ensure that Treasury risk is managed in line with the company's overall risk appetite and will need to set the objectives for the Treasury function so that the organisation is not a profit centre, but manages risks appropriately.
"They will also need to ensure that internal and external audit programmes take into account the risk profile of the Treasury function.
"The Regulator will continue to have an important role in monitoring exposures and taking action."
