IDAs will assess an RP’s quality of governance, assessment of risk and its risk mitigation strategies. It is not yet clear whether value for money will feature as part of all IDAs (and differing approaches have been taken during the pilot programme). The Regulator has indicated that it will take a ‘first principles’ approach, starting from the premise that the RP has a G4/V4 rating, with the onus on the RP to give sufficient assurance that they are at the appropriate governance and viability ratings. This demonstrates a marked change to the approach previously taken by the Regulator, where a move away from current straplines for an RP (in effect) had to be justified by the Regulator.
Moody’s were quoted in Social Housing magazine earlier this year as saying the financial difficulties experienced by Venture Housing Association showed the ‘limitations’ of co-regulation. The Regulator’s introduction of IDAs has been likened by Jonathan Walters, Deputy Director of Performance and Strategy, to the approaches taken by such ratings agencies and is therefore clearly intended to give greater comfort that the business plans and governance arrangements being put in place across the sector are being tested robustly against the requirements of the Regulatory Framework.
The Regulator has stated that this should not be a move back to the KLOE days of the Audit Commission, with a checklist approach to assessing an RP’s governance and financial viability. Feedback on the pilot IDAs supports the validity of this statement. Speaking at a recent Placeshapers event with Charlie Norman (Chief Executive, St Vincent's Housing Association), Richard Foster (Senior Investigation and Enforcement Advisor, HCA) reinforced the point that a bespoke approach was, and would be, taken to each IDA, with key areas of concern in relation to individual organisations identified and assessed.
The concern is whether this level of individual treatment and investigation can realistically be undertaken with every organisation, if the Regulator is to achieve its suggested programme of carrying out an IDA for every RP (owning over 1,000 units) at least every four years (with additional IDAs carried out as necessary for ‘rapidly changing’ and riskier RPs).
The IDA, if it is to be delivered in line with the approach taken to the pilot programme, will prove a useful tool for RPs. The IDA will test the strength of their business and governance arrangements to ensure they are fit for purpose and able to deliver their desired objectives, and will also deepen the Regulator’s understanding of each RP’s business. Undoubtedly there’s also the potential for the strengthening of the relationship between individual RPs and the Regulator.
However, if a ‘straitjacket’ approach is taken, it will bring into question the usefulness of the IDA and what it will add to current regulatory tools, given the ever more diverse nature of the sector and the increase in more complex governance and funding arrangements.
Both the Regulator and RPs need to keep sight of the fact that IDAs should be a means to an end – strong and effective organisations – rather than an end in themselves.
Contact Gemma Bell.
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