Introduction of regulatory status ‘will help RSLs raise money’, says Scottish regulator

News06 Sep 2019Sarah Williams

Feedback from registered social landlords (RSLs) and funders that the lack of a clear regulatory grading placed Scottish providers at a “competitive disadvantage” fed into the decision to introduce new regulatory statuses, the Scottish Housing Regulator has said.

Ian Brennan speaks at the Social Housing Scottish Annual Conference, 2019

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Speaking at the Social Housing Scottish Annual Conference in Glasgow yesterday, director of regulation Ian Brennan said that the introduction of a new ‘regulatory status’ for each provider from April 2020 would provide clarity to sector stakeholders.

Previously, the SHR labelled providers with engagement levels of ‘low’, ‘medium’ and ‘high’.

Mr Brennan said that, while in England the most compliant providers are awarded a ‘G1/V1’ rating for governance and viability, ‘low engagement’, the nearest equivalent in Scotland, was found to be ambiguous by both providers and funders.

“A number of lenders said to us, well ‘low engagement’ is actually not much use to us because lenders actually prize engagement and… if it’s low engagement versus G1/V1 then G1/V1 is probably [going to] get the money every time.”

He added: “We are anticipating that is a change that will help RSLs to raise money in the future. And we know looking at business plans that more RSLs are planning to raise money than ever before.”

Mr Brennan yesterday emphasised that providers must understand what lenders want and require, and reiterated his caution that providers must also consider the impact of statutory intervention on their loan covenants. “Where is it in your risk register, and what steps are you taking to mitigate it?” he asked.

Asked whether institutional finance accessed through private placements presented more of a challenge for the regulator, because their interaction with borrowers was perceived to be less “collaborative” than through traditional banking relationships, Mr Brennan said “that could be a problem if we had to intervene”.

He said intervention would require a different approach from the regulator, rather than following the normal “script” used with bank lenders.

Contributing to a panel session with Mr Brennan on ‘Assurance and statutory intervention’, Stuart Heslop, managing director – real estate finance at RBS, said that RSLs should use their arrangers on deals to represent their views to investors in the event of problems.

“Would I would say is: ourselves and other banks will represent [the sector] in the capital markets and get the funding raised for them.

“I would be urging people to use those same people if there’s going to be an issue, and use them to represent you again as you speak to those investors if an issue does arise, because they know the investors best, and can represent your view.”