The HCA's Jonathan Walters' presentation to the NHF hosted Audit Committee Conference on 3 December in Birmingham, looking at changes to the Regulatory Framework.

1. The social housing regulator
Successful places
with homes and jobs
A NATIONAL
AGENCY
WORKING
LOCALLY
NHF Audit Committee
Conference –
Changes to the
Regulatory Framework

2. 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?

3. The social housing regulator
But some cyclical factors are
hiding the impact

4. 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
Housingsalesas%oftotalturnover
£(million)
1st tranche shared ownership Properties developed for sale Fixed asset sales Revenue a % of all turnover

5. 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

6. 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

7. 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?

8. 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

9. 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
9

10. The social housing regulator
Elements of the new operational model
In Depth
Assessment
Stability
Check
Quarterly
Survey
Plus

11. 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.
11

12. 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
12

13. 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.
13

14. 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
14