Four associations address governance issues to return to regulatory compliance

Broadacres Housing Association

Broadacres Housing Association has been upgraded from G3 to compliant G2, and had its viability assessment regraded to V1, from V2.

 

This follows a downgrade in February 2017 when the regulator concluded that business planning, risk management and internal controls frameworks at the provider had not been effective “specifically in relation to board oversight of the activities of its commercial subsidiaries”.

 

The problems related to open-market sale subsidiary Mulberry Homes Yorkshire Limited (MHYL) which Broadacres, as the registered parent, was forced to financially support after “foreseeable risks crystallised”. This meant that Broadacres was exposed to material losses, impairment charges and write-offs.

 

The regulator found that “lack of robust, independent challenge by the Broadacres board and the information it received to support its decision-making in relation to the underperformance of its subsidiary, MHYL was of poor quality.”

 

Following actions by the Broadacres board to de-risk its exposure to MHYL, which is now wholly owned by Broadacres, with updated governance arrangements to provide it greater oversight of its commercial subsidiaries, the regulator found that it is compliant with governance. MHYL achieving the majority of sales, allowing it to make loan repayments to Broadacres has also meant that the remaining financial exposure is manageable.

 

The RSH said: “[Broadacres] has an adequately funded business plan with sufficient security in place, and is forecast to continue to meet its financial covenants under a wide range of adverse scenarios. The actions to de-risk MHYL have reduced a material financial risk exposure which has contributed to the regulator’s decision to regrade the organisation.”

 

Social Housing has contacted Broadacres for comment.

 

Manningham Housing Association

The regulator upgraded Bradford-based landlord Manningham Housing Association (MHA) to G2, following its previous G3 judgement in February 2017, and regraded its financial viability to V1 (from V2 in November 2017).

 

In February 2017, the regulator found that MHA lacked effective leadership or strategic direction, and that the risk management framework in place was ineffective, with inadequate capacity and resources to manage key risks.

 

As part of a process of improvement, MHA entered into a voluntary undertaking with the regulator to transform its governance, incorporating a full review of board and administrative arrangements including the recruitment of new board members and the appointment of Barrington Billings as a new chair.

 

In its latest regulatory judgement, the RSH said: “An appropriate governance framework is now in place, underpinned by additional leadership and governance resources, and there is evidence of it operating in practice. An organisational restructure has brought more capacity for key roles around compliance and risk management.”

 

In November 2017, MHA was found to have limited capacity to deal with downside risk, and was forecasting very low interest cover in the medium term. This week the regulator said it now has assurance “that MHA has a stronger financial profile”.

It added: “Its business plan is based on prudent financial assumptions and is forecasting an improved position on interest cover.”

 

Lee Bloomfield, Manningham’s chief executive since January 2018, said: “Being a non-compliant organisation is not a good place to be.

 

“Registered providers must have the confidence of the regulator and our funders. Being downgraded to non-compliant puts a cloud over this. I am delighted that the brave and ambitious changes we have made over the last two years have been acknowledged.

“I am confident that these well-earned results signal the start of a bright new future for MHA and our tenants. We are already focused on the next in-depth assessment and our goal of achieving the top governance rating.”

This week also saw two providers upgraded to the highest governance rating, G1.

 

Severn Vale Housing Society

 

In July 2017, Severn Vale Housing Society (SVHS) had its governance rating downgraded from G1 to G2 following an in-depth assessment (IDA) which found that it needed to improve the effectiveness of some aspects of its arrangements to support continued compliance.

 

This related in particular to “inherent risks” stemming from its financial position and low forecast headroom on future covenant compliance.

 

The RSH said this week that since then, SVHS has improved the quality of its stress-testing, along with its performance reporting to the board.

 

It continued: “SVHS has also strengthened its board by carrying out a skills-based recruitment exercise, following an independent effectiveness review. These improvements have provided us with assurance that the risks facing the business are being managed. All material actions are now complete and SVHS’ governance arrangements are fit for purpose.”

 

The regulator maintained SVHS’s V2 rating for viability.

 

Tim Knight, Severn Vale’s chief executive, added that a key part of the change was to appoint a board “based on skill sets we required to run our business as opposed to outdated criteria that required applicants to be representative of specific categories of stakeholders”.

“This has resulted in a board able to support our vision to become the leading housing provider in Gloucestershire, something we all recognised would be impossible to achieve as a small independent housing association and an objective which is now being realised through our merger with Bromford.”

 

Islington & Shoreditch Housing Association

Islington & Shoreditch Housing Association (ISHA), a 2,424-home landlord in east London, was upgraded to G1 from G2, while its financial viability went down one notch to V2.

 

This follows a narrative regulatory judgement in January 2018, and IDA and subsequent reactive engagement in 2017 which concluded that ISHA had not provided clear evidence of adequate board challenge on health and safety compliance.

 

The RSH said: “ISHA has since taken action to improve the governance of its risk management and control framework.

“This has included commissioning independent reviews of its health and safety compliance, overall health and safety assurance framework and the effectiveness of the board. ISHA incorporated the recommendations from these reviews into an action plan to improve board oversight and control of risk management.

“Our assessment of the findings of these reviews, and of the evidence that recommendations have been implemented, has provided assurance that ISHA has now established appropriate governance arrangements for the control of health and safety risks.”

 

The RSH said that the rationale for a regrade to V2 for viability stemmed from limitations in ISHA’s capacity to deal with downside risks, based on its financial profile. This included the fact that ISHA is to increase major repairs spending in accordance with an updated asset management strategy.

Social Housing contacted ISHA for comment.

 

Gradings under review

The RSH also announced that it has placed North Lincolnshire provider Ongo Homes Limited onto its gradings under review list.

 

The RSH said: “Ongo’s current grade is G1/V1 and the regulator is currently investigating a matter which may impact on Ongo Homes Limited’s compliance with the governance element of the governance and financial viability standard.”

 

In a statement to Social Housing, Ongo said: “Ongo Homes was informed that its compliance with the governance and financial viability standard was being placed under review by the Regulator of Social Housing on Wednesday 19 December 2018.”

“The review has been initiated following the voluntary referral of information from the Ongo Homes’ board to the regulator.

 

“Ongo Homes will fully cooperate with all aspects of the review and will release a further statement following the outcome of the review.”