Changes to the Regulatory Framework

Changes to the Regulatory Framework

Managing risk and governance control are contentious issues for Registered Providers (RPs). Reduced government grant, Welfare Reform, and more complex ways of financing development, have all led to a significant shift in the sector’s risk profile.

This year, the Homes and Communities Agency (HCA) released details on regulatory judgments totaling twenty-two G2s, two G3s, sixteen V2s, and one V3. Altair also published its independent report into the near failure of Cosmopolitan, identifying lessons for the sector and regulator.

In this context, the HCA recently opened consultation on Changes to the Regulatory Framework, outlining major modifications, including some key changes to the governance and viability standard.

Compulsory stress and scenario testing

Stress and scenario testing form part of an organisation’s effective internal risk management, identifying weaknesses and informing organisational strategy. Altair has undertaken stress tests with several RPs, developing comprehensive scenarios, and acting as a ‘Critical Friend’ helping boards think through the consequences of events.

The HCA has only provided limited details in its Code of Practice on how to employ these instruments. Applying scenarios can be challenging, not least in identifying realistic but improbable events that cover a range of likelihoods.

Altair Partner and governance specialist, Fiona Underwood, recommends that RPs should consider wider operational matters as well as financial issues in their scenario planning. Exploring cumulative risk is crucial to understanding whether boards have the capability to respond to major incidents.

Understanding assets and liabilities

To further protect social assets, the HCA has proposed that RPs must demonstrate a clear understanding of their assets and liabilities. The ‘Cosmo’ report highlighted the importance of having an assets and liabilities register. This should feed into the board and be updated at least annually. Altair believes that it’s vital for organisations to accurately record assets linked to a specific transaction and the associated party, as well as establishing free assets available for future charging. This means if an organisation is in trouble, the board knows what assets are unencumbered. It can then take swift action, e.g. selling social assets to other providers, that protects social tenants and tax payers’ money.

Skills of the board

RPs will need to ensure that their boards have the correct skills/ capacity to manage risk. Altair contends that RPs should consider that this may entail refreshing skills – no matter what the length of service.

An evidence based approach is important in assessing skills and capacity. When conducting leadership reviews, Altair uses interviews with key stakeholders and reviews available records. These sources reveal what’s working and what’s not. Skills can also be nurtured through career mentoring. These tools, alongside regular reviews of governance effectiveness and skill strategies, ensure boards can meet future challenges.

It’s clear that the regulator’s main concern is the sector’s increasing risk profile. To stay ahead of the curve RPs should now think practically about how they will apply these changes throughout their organisation.

For more information contact Lucy Worrall