The social housing regulator

Successful places

with homes and jobs

A NATIONAL

AGENCY

WORKING

LOCALLY

NHF Audit Committee

Conference –

Changes to the

Regulatory Framework

The social housing regulator

Life is getting more

complex for providers Gone: 30 year money from

banks

Gone: 50% plus grant rates

Going: Welfare underwriting

rents in full

At risk: local government

funding – Supporting People

Complex choices for Boards

Opportunities and risks

A more cyclical model?

The social housing regulator

But some cyclical factors are

hiding the impact

The social housing regulator

Sales are increasingly funding

the subsidy gap

Sales

620

971 898 638 516

734

1,405 1,736

1,536 1,470

940

606

583

538

508

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2014 2015 2016 2017 2018

Ho

usi

ng

sale

s as

% o

f to

tal t

urn

ove

r

£ (

mill

ion

)

1st tranche shared ownership Properties developed for sale Fixed asset sales Revenue a % of all turnover

The social housing regulator

Regulatory Framework

In the light of the changes in the sector we have been

looking at how the regulator needs to evolve

Consulting on changes to the Framework

Protection of social housing assets is priority

– Protect taxpayer investment

– Protect tenants

– Maintain investor confidence: continued growth in supply

The social housing regulator

Framework Changes

Fine tuning on-going but expected requirements:

Don’t put assets or viability at undue risk

Skills and capabilities of board to match activities

Active stress testing

Maintain records of assets and liabilities

Boards to certify compliance to Governance and Financial

Viability Standard

The social housing regulator

What should RPs be doing

Robust stress testing

Establishing appropriate controls

Challenge yourselves on skills and capabilities

Focus on risk flows

Question

– What could bring my business down?

– Under what circumstances?

The social housing regulator

What next

Currently finalising framework

Publish decision early January

Full framework to be published March 2015

New framework comes into effect April 2015

The social housing regulator

Changes to our operational approach

The changes which we are making through the new regulatory

framework drive changes in our operational approach

In regulating the new framework we want to:

– Gain a more strategic grasp and evidenced understanding of both the

short-term and long-term risks in providers’ businesses

– Gain greater assurance about providers’ vulnerability to covenant

breaches, issues of recourse and non-social housing assets

– Better integrate our viability and governance work so that we reach more

rounded judgements

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The social housing regulator

Elements of the new operational model

In Depth Assessment

Stability Check

Quarterly Survey

Plus

The social housing regulator

The new model – modes of operation

We will use the Quarterly Survey to provide us with an ongoing

early warning system regarding all providers’ short term viability

Two modes of operation:

– Periodic In-Depth Assessments (IDAs) will focus on getting to grips

with a provider’s risk profile, exposures and the quality of its governance

to deal with those risks. Each IDA will be a bespoke piece of work,

looking at providers’ stress testing, the quality of their responses to

negative scenarios and how any contagion could be spread through the

group.

– Annual Stability Checks: focused gap analysis to ensure that no

material changes have occurred since our last in-depth assessment of

the provider.

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The social housing regulator

Quarterly Survey

Quarterly Survey returns will act as an early

warning system to ensure that all providers

with solvency and liquidity issues are

identified

Reactive engagement will be triggered by

providers failing to meet these minimum

requirements

We are reviewing the information we seek

through the survey to ensure it remains fit for

purpose

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The social housing regulator

In-depth assessments

Component Element

Strategy The provider’s strategic direction , priorities and its operating

markets

Structure The provider’s structure, the interaction between the various

companies within the organisation and the activities they carry

out

Financial

Resilience

In-depth analysis of the provider’s long term viability: financial

strength and financial management.

Risk profile

and mitigation

Rounded assessment of the provider’s understanding of the

significant risks facing its business and how effectively it is

managing them in the context of its risk appetite so that it can

deliver its objectives, maintain its financial position and protect

social housing assets.

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The social housing regulator

Stability Checks

In a year when a provider is not having an IDA it will have a

Stability Check

This will be a gap analysis to determine if the key

financial/data returns indicate any changes significant enough

to call into question the provider’s current straplines

The stability check will entail

– An automated analysis of key metrics based on regulatory return

data to confirm financial strength. This will be a combination of

benchmarking, check against actuals and trend analysis

– A focused review of the provider’s business plan and financial

statements to confirm no material changes in strategic approach

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