Implications of the latest regulatory press release – RSH provides clarity on regulating for-profit providers

Posted: 31st March 2022 Saqib Saleem, Director

The regulator updated its “Regulating the Standards” document in March 2022. This sets out what providers can expect from the regulator and its commitment to being open and transparent with their work.

Whilst there have been changes to the approach, one of the key changes and inclusions relates to how the regulator will publish regulatory notices on for-profit providers.

An extract of the wording included within the updated “Regulating the Standards” document relating to regulatory judgements and notices for for-profit providers:

6.14 – Narrative regulatory judgements for large for-profit providers are produced in accordance with the framework set out above. However, we recognise that such providers have different capital structures and cash flow dynamics and are often subsidiary organisations within a larger group of connected companies on which the for-profit provider depends to carry out its functions. While the provider may often contribute to the wider group strategy, it must meet the requirements of the regulatory standards. In such cases, the regulator recognises, and wishes to be transparent with stakeholders about the fact that there is a qualitative difference from groups headed by non-profit providers.

6.15 – This in turn impacts on the nature of our judgement about the provider. Narrative regulatory judgements relating to for-profit providers include an explanatory statement to make it clear that our judgement concerns the registered provider only and does not represent an assessment of non-registered entities within the group or their ability to provide support to the registered provider, although we do take into account risks to the registered provider from its relationships with the wider group. To provide further clarity we use an asterisk with a for-profit provider’s grade (e.g. G1*) to make it clear that the assessment refers to a provider that is designated on the register as being for-profit.

The regulator also clarifies where they will assess compliance over an entity, whether providers fall within registered provider group function or whether they are part of an un-registered parent group.  The distinction being that compliance will be expected at group level rather than individual entities if the group is a registered provider and where a provider falls within an unregistered group then compliance will be expected at only the registered provider entity.

Implications of these changes

1. The regulator acknowledges that whilst organisations within the for-profit area may have differing funding and capital structures, they still must comply with regulatory standards despite being a for-profit social housing provider.

2. Where support is being provided by a non-registered Group company such as corporate services to a registered subsidiary, the regulator will not be including the Group within their compliance assessment, nor will the Group be expected to comply with the regulatory standards. However, this does indicate that the regulator will want the registered entity to understand what those services are, and the extent they are being supported by the Group.

3. The regulator will also expect the registered entity to understand the quality and performance of those services being provided by Group insofar that they do not compromise the requirement for the registered provider to comply with its obligations required by the standards. This includes compliance with the Value for Money Standard.

4. The registered entity should have a clear understanding of the inherent risks of being headed by a non-registered group structure, some of these may include*:

Independence / Conflicts

  • How much influence of the group is being pressed onto the registered entity?
  • Does the registered entity have the appropriate policies and controls in place to manage internal conflicts?

Strategy / Finance

  • What safeguards are in place to ensure that the registered entity can make independent decisions required for its purpose and how much is its strategy being influenced by Group?
  • What are the financial risks to the registered entity from being part of the group and how should those risks be stress tested on the business plan of the registered entity?

Support services

  • What processes including mitigating controls are in place to ensure that the registered entity can exercise its duty as a registered social landlord including its ability to continue to service customer needs.

5. Whilst most of these risks and concerns may already have been considered by for-profit registered entities with a non-registered parent, the regulator is making it clearer within the update that these are matters which it may consider when conducting its assessment of for-profit providers in future.

 

 

To find out more about regulating for-profit providers, get in touch with Saqib Saleem, Director at Altair.

*This is not an exhaustive list of risks or concerns that the regulator may query when conducting its assessments as this will depend on each organisations specific circumstances.

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