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Landlord for 22,000 homes handed governance downgrade in latest batch of regulatory judgements
A 22,000-home landlord has been hit with a governance downgrade by the Regulator of Social Housing (RSH) in the latest round of regulatory judgements.
Today’s publications from England’s sector regulator also reveal probity concerns at a housing association in the North West and see governance upgrades for two providers previously rocked by safety issues.
Yorkshire-based Incommunities Group has been handed a governance downgrade from ‘G1’ to ‘G2’ – still compliant but indicating weaknesses in its risk management.
The 22,000-home housing association self-reported to the RSH “that it had not implemented rule changes correctly, for two of its subsidiaries, in April 2018”, according to the regulatory judgement.
The error – which is not specified – was not discovered until May 2020, by which time the group had refinanced and issued a bond, meaning the subsidiaries made incorrect certifications about their rules to lenders.
Incommunities’ “internal controls did not ensure that the new rules were implemented correctly or identify that it had not registered them with the Financial Conduct Authority”, the RSH said.
It has since “worked with funders and lawyers to rectify the situation”, the regulator added, “but the reliance on incorrect rules left [Incommunities] reliant on the goodwill of the group’s funders”.
Decisions made between April 2018 and May 2020 had to be ratified by Incommunities and the affected subsidiaries “including in respect of its funding arrangements”.
The group has now “commenced work to strengthen its internal control framework and is keeping the regulator informed of its progress”, the judgement said.
Incommunities’ financial viability rating remains unchanged at ‘V1’ following an in-depth assessment that found it has an adequately funded business plan, sufficient security in place and is forecast to meet its financial covenants.
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ForHousing, the 24,000-home housing association arm of unregistered group parent ForViva, has been kept at ‘G2/V1’ by the regulator after nearly a year on the Gradings Under Review list – indicating it “needs to improve some aspects of its governance arrangements”.
Today’s regulatory judgement reveals that Salford-based ForViva commissioned “a series of external reviews” following “whistle-blowing allegations concerning probity and a lack of transparency in decision making”.
No further details are provided on the nature of the allegations.
The group has now “adopted interim governance measures” and is “taking further steps to strengthen internal controls and to improve the independence of its decision making”, it added.
Independent advisors have been appointed to undertake a full governance review and consider whether ForViva’s structure “facilitates ForHousing’s delivery of its strategic objectives”.
An interim regulatory judgement for ForHousing was published in May 2019 after a group restructure saw it move to an unregistered parent set-up.
ForHousing’s board has vowed to work with the RSH and develop an action plan, the judgement said, with a further review also deemed necessary to provide “assurance on the effectiveness of its actions and on its approach to transparency”.
Stephen Reuben, chair of ForHousing, said: “The Regulator for Social Housing has now completed its review of ForHousing and found us to be compliant.
“The Regulator has taken this opportunity to provide us with our regulatory judgement and we are G2 (Governance) and V1 (Viability)
“We would like to thank the regulator for their guidance in this process and we look forward to working with them to further improve our governance.”
The latest judgements also saw a return to compliance for Livv Housing Group, the housing association formerly known as Knowsley Housing Trust (KHT), with a governance upgrade from ‘G3’ to ‘G2’.
KHT was declared non-compliant by the RSH in August 2018 over widespread health and safety failings.
The regulator also found significant weaknesses in the effectiveness of board oversight and scrutiny at the time, and ineffective risk management and internal controls.
In May this year, KHT announced it had rebranded and undergone a restructure, with the changes seeing it get rid of its unregistered parent company First Ark.
In 2010, KHT was the first housing association to set up an unregistered parent company.
Today’s judgement said the restructure facilitated improved oversight of the association’s activities, and that the landlord had strengthened governance arrangements through a refresh of its board and executive team, which has enabled more effective scrutiny and risk reporting.
It also said Livv has implemented a fresh risk management framework, which included new policies and procedures relating to statutory health and safety compliance.
Léann Hearne, chief executive of Livv, said: “Trust. Safety. Data. These three words are hugely powerful and have underpinned two years of change to get to G2 and to define a Livv that’s both for, and of, the future.
“We’ve left no stone unturned to get to the strongest data and processes possible and with a change to a regulated parent, we’ve put our purpose back at the core of the business, a housing provider that focuses on positive impact and flourishing communities.”
GreenSquare Group, which owns homes across Gloucestershire, Oxfordshire and Wiltshire, has had its governance grading upgraded to ‘G1’, having been downgraded in June 2019 after breaching the regulator’s Home Standard over fire safety issues.”
In today’s judgement, the RSH said GreenSquare “has enhanced the skills mix of its board and improved the quality of reporting”, leading to “improved oversight of health and safety compliance”.
GreenSquare has also implemented recommendations from an independent review of governance and communicated material issues with the regulator in a “proactive and timely way”, the judgement said.
The 12,000-home landlord has maintained its ‘V2’ rating for financial viability, but the basis for this grading has changed.
The regulator said GreenSquare “has the financial capacity to deal with a reasonable range of adverse scenarios” but needs to manage risks related to its development programme, which will “significantly increase its level of exposure to the housing market through outright sales, and an increased level of investment in existing stock”.
Ruth Cooke, chief executive at GreenSquare, said: “We absolutely accepted the need for change that the previous regulatory judgement highlighted last year.
“Even before it was published, we had been focused on doing all that was necessary to ensure full legal compliance and, critically, the health and safety of our customers and colleagues.
“This new assessment by the regulator is testament to the efforts of all those involved in ensuring the successful delivery of the far-reaching improvement plan that we agreed with the regulator last year.”
Meanwhile, East Anglian landlord Flagship Group has retained its top ‘G1/V1’ grading following an in-depth assessment.
Incommunities has been approached for comment.
Update: at 12.20pm 28/10/20
Comments from ForHousing and Livv Housing were added to the story
Regulatory judgements in England explained
The Regulator of Social Housing publishes regulatory judgements for all providers owning 1,000 or more social housing homes.
These judgements set out whether the provider is complying with the regulator’s governance and financial viability standards.
The regulator carries out an assessment either through a scheduled in-depth assessment, or reactive engagement (in which the regulator acts following information about a provider).
It then awards the provider a rating from one to four for financial viability (V) and a separate rating from one to four for governance (G).
Providers must score two or higher in both categories to be judged as complying with the standards.
As providers have increasingly taken on more risk to cross-subsidise social and affordable housing delivery through market-facing activity, the regulator has changed a number of associations’ viability ratings from V1 to V2.
The regulator often categorises this kind of regulatory action as ‘regrades’ rather than downgrades. Click here to read more.
Key to ratings:
V1/G1: Compliant
V2/G2: Compliant
V3/G3: Non-compliant and intensive regulatory engagement needed
V4/G4: Non-complaint, serious failures, leading to either intensive regulatory engagement or the use of enforcement powers
Rating straplines in full:
Governance ratings:
G1: The provider meets our governance requirements.
G2: The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance.
G3: The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
G4: The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.
Financial viability ratings:
V1: The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
V2: The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.
V3: The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
V4: The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.
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