Governing in uncertain times

As we continue to await an outcome to Brexit and further certainty around new requirements in relation to building standards and fire safety requirements following on from the Grenfell tragedy, we also witness the cooling property sales market spreading beyond the South East and the continued impact of fundamental changes to the welfare state on our customers.

Housing associations must continue to deliver core functions effectively and compliantly notwithstanding the uncertainty over the standards to which will be held in the future, and doubts as to where your income and new supply of housing will come from.

The 7^th annual Sector Risk Profile was published in mid-October – later in the year than previous ones, as though the Regulator held out as long as it could to see whether any of these uncertainties resolved themselves (spoiler: they didn’t).

There were no surprises in its areas of focus, nor that these were couched in the strongest terms of Board responsibility:

• Health and safety compliance – Boards are required to have strong and appropriate oversight of decisions around stock quality and health and safety compliance, and to ensure compliance with all health and safety law and regulation;
• Stock condition and asset management – anticipating the challenge to Boards will be around prioritising essential investment in existing stock against resource-hungry development and new supply, and the need for Boards to have a well-integrated strategic approach to asset management. Linked to this, registered providers (RPs) must have reliable and up-to-date data, to accurately inform both compliance positions and asset management decisions;
• Market sales exposure – a rapidly cooling outright sales market jeopardises the traditional cross-subsidy model for new supply. Boards are expected to understand their local – and the national – housing market cycle and be aware of the impact on their business and take appropriate action to avoid impairment charges that could impact on funding covenants in particular;
• Reputational risk – it is now more important than ever that Boards treasure and protect their reputation at organisation and sector level. Risks to this come in many guises – executive payoffs, health and safety failings, fraud and failures under the consumer standards;
• Rents/income – notwithstanding the end of rent reductions, Boards are urged to be careful about placing too much reliance in their business plan on assurances from Government as to rent stability over the next five years (a prescient warning given we now have a general election on 12 December that could see a new party or parties in Government for that period).

The Regulator’s expectation is that Boards are fully in control of their organisation, understand the inherent risks in all areas of their business and own the effective management and mitigation of those risks (and any consequences of not doing so).

Where things go wrong, we continue to see the Regulator treat this as a failure of governance laid at the feet of the Board. Its lack of sympathy for Boards that are not on the front foot is evident in the wording of recent regulatory reports and downgrades – early disclosure to the Regulator of any potential regulatory breaches is key, as is keeping them informed of what, when and how you are doing to fix things.

However, beware the Board that comes across the Regulator’s desk a little too often – it often views a series of seemingly minor breaches as a more significant indicator of systemic governance failure than one mighty one.

We provide support to Boards and organisations on all types of governance issues, including managing breaches and potential breaches and engagement with the Regulator. We also provide advice to organisations on how to strengthen their governance arrangements and test risk flow within their current structures.

For more information

Please contact partners Victoria Jardine, Peter Hubbard or Gemma Bell for a confidential discussion.