English regulator warns providers on resolution recovery planning

Mr Walters referred to the report the regulator launched last year, in association with the G15, about ‘living wills’ to help social landlords in the event of a catastrophic failure where they could no longer provide services.

He said he would encourage all organisations of any scale to look at this, and that the time was coming for another conversation about resolution and recovery plans, and perhaps further regulation on this.

Mr Walters said: “We went some way in 2015, we introduced new regulatory requirements for asset and liability purchases. And the G15 issued a really helpful piece of work a couple of years ago looking at...how you might create a rescue resolution plan for organisations.

“I would encourage all organisations of any scale really to have a look at our G15 document on resolution recovery planning. The best solution to that is boards themselves spotting the problem and mitigating it first.

“I think, as a sector, the time is probably coming for another conversation about resolution recovery plans, and do we need to start thinking about does there need to be a more formal regulatory requirement?”

Mr Walters said the RSH had a very small number of organisations graded at G3 or on the gradings under review list and was “confident” they would all find a solution themselves, or there would be a successful resolution.

He said he had “real confidence” that the sector’s bigger organisations were well managed and well run.

“So, I think we have confidence. But there may be another exogenous shock. The sector is in a weaker position than it was five years ago; we have to make sure that the sector is able to target development to be able to rescue its own,” he said.

“There have been one or two cases where government has provided liquidity funding. I think the government will step in to an extent, but it is not an open chest and it’s not something that’s, ‘OK, take whatever risk you want, the public sector will underwrite the issues that you’ve created’.”

Mr Walters said he had been at the RSH long enough to have sat through several mergers that had clearly been rescues, such as that of Cosmopolitan and more recently Swan, and that there had been plenty of other mergers, some of which had not been publicised as rescues.

He said rescues normally happened because a board had either tried to do too much, which the provider did not have the capacity to do, or had done a wide variety of things.

Mr Walters added there had been a small number of mergers where providers had been hit by a “genuine exogenous shock that perhaps you couldn’t expect the board to have seen” and there were probably now some mergers taking place as a result of building safety work.

He said: “What you normally find with rescues is there is a short-term liquidity or financing issue that someone with a bigger balance sheet needs to resolve. And, as long as they can do that, ultimately it can create more efficiency in the organisation they take over and that therefore leads to better outcomes in the long term. It keeps tenants safe in their homes and those homes better maintained and looked after than before.”

Mr Walters said: “What you’ve always seen, I think, is poor governance leading to poor financing decisions, probably in the tune of a noble end, which is generally about building more homes.”

Mr Walters was speaking on a session entitled ‘Assessing the pros and cons of mergers between housing providers’. 

Fellow panellist Jehan Weerasinghe, managing director of One Housing, which in late 2021 joined Riverside to create a 75,000-home group, said the merger had led to “tangible benefits” for customers.

This included setting aside £1bn in the next five years to invest in existing homes, for decarbonisation and building safety, among other things, setting up a community foundation and paying around £2.5m a year into it, and aiming to deliver £7.5m from merger-integration savings.

“Ultimately, it’s keeping the customers in mind. Now, within that, what I will say is that most customers probably don’t mind either way whether there’s a merger or what the name of the organisation is,” said Mr Weerasinghe.

“What they care about are all the things the volume of calls coming into our customer service centre tell us about, which is the decent repair service and if people will get back to them on time. So those are the things that I have to hold sacrosanct, and not just ensure that there’s no disruption in that, but improve upon.”

Also speaking during the session was Mark Washer, chief executive of Sovereign Network Group (SNG), which was formed in October when Network and Sovereign merged. Mr Washer said the merger was allowing the combined group to invest more in its existing stock, development, community funding, data and new technology.

He said the merger was about “thriving, not surviving”, building on the vision of both housing associations and de-risking those visions in the context of many challenges.

Mr Washer said: “It gives us deeper pockets. It enables things like transformation. And, in that context, I think provides opportunity.

“If I think about all the things that we wanted to do at Sovereign and the things that I know Network wanted to do – I think about investment in data, I think about investment in decarbonisation – all of these things are things that the sector across the board is grappling with.”