The social housing regulator is changing the regulatory framework to better protect social housing assets and tenants amid a more complex operating environment for providers. The new framework will focus on ensuring providers don't take undue risks with assets or viability, have appropriate board skills, conduct active stress testing of risks, and maintain proper records. Providers will need to demonstrate compliance with the new Governance and Financial Viability Standard. The regulator is finalizing the framework with publication expected in early 2020 and the new rules taking effect in April 2020.

1. The social housing regulator
Successful places
with homes and jobs
A NATIONAL
AGENCY
WORKING
LOCALLY
NHF Risk 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
What did “Cosmo” tell us?
 Creeping risk profile made
business unsustainable
 Weak governance
 Poor controls
 Complex finance
 Commercial exposures to
non-social housing
 You should learn the
lessons

6. The social housing regulator
It’s not just Cosmo
 Dubious rationale and process
for mergers
 Development problems
 Poor grasp of risk flows and
risk in he round
 Treasury / security mishaps
 Boards with inadequate skills
and grip
 Tardiness / economy with the
truth

7. The social housing regulator
Providers can’t always
answer the ‘simple’ questions
 What is this organisation
for?
 Why are we doing this?
 What happens if it goes
wrong?
 How do we know that [gas
servicing] is OK?
 If I was putting my own
money at risk, would I do
this? What return would I
want?

8. 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

9. 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

10. The social housing regulator
What are we going to expect
on stress testing?
 You need to understand risk flows and risk in
aggregate
 It needs to be comprehensive and forensic – so
asset/liability register likely to be pre-requisite
 Deal with “what ifs” (e.g. can we really walk away from
that non-recourse JV / subsidiary?)
 You need to know what kills you
 Outputs should inform business plan and risk-appetite
 You should consider (and where necessary embed)
stabilisers / controls

11. 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?

12. 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