The Sector Risk Profile 2017, published today (28 July 2017) by the regulator of social housing, emphasises the importance for registered providers to undertake robust stress-testing and understand and mitigate likely risks in a continually evolving economic and policy environment.
The annual publication sets out the regulator’s view of the range of strategic, financial and operational challenges facing the social housing sector and highlights how the regulator will seek assurance that boards are managing those risks effectively.
The main points for boards that are highlighted in this year’s SRP include the need:
- to ensure that comprehensive and effective systems are in place to identify and manage all health and safety requirements that apply to their homes – they must also fully understand all their obligations in relation to tenants’ health and safety
- to stress-test a wide range of potential scenarios that are inherent to their business
- to understand the risks associated with development programmes and the increased reliance on sales revenues
- to understand the impact of any increase in interest rates and the effect new margins will have on business plans and with loan covenants
- to assess the impact that rising inflation, in conjunction with the ongoing rent cuts, may have on delivery of planned cost savings and the overall business plan
- to continue to evolve governance structures and skills as the sector continues to diversify into a range of new commercial ventures and relationships
- to have a strong oversight on decisions around constitutional changes and disposals and be fully informed so that they can manage the reputational, legal, and financial risks following de-regulation measures that came into force in April 2017.
This year’s SRP seeks to highlight the key risks to the sector in their longer-term context, drawing on both outturn data and forecast data to highlight the key trends that are reshaping the sector. It includes an annex that reflects the regulator’s experience of dealing with consent applications for organisational restructures and disposals of social housing. The annex outlines some of the issues that boards will need to consider in the changed regulatory landscape.
Alongside the SRP we are also publishing an updated version of Regulating the Standards (RtS). This sets out our expectations regarding stress testing and what we expect providers to evidence as part of their overall approach to effective risk management. RtS also has a new section summarising our regulatory approach following the introduction of the notification requirements by the Housing and Planning Act 2016.
Fiona MacGregor, Executive Director of Regulation, said "The sector has witnessed an unprecedented level of change in recent years. With this change accelerating over the coming years, boards will need to consider a range of strategic risks that they may face and how these can flow across different parts of a group in different scenarios over and above the key operational and financial risks outlined in the latest Sector Risk Profile.
"Through our increased focus on the quality of stress testing, it would be reassuring to see, more systematically, evidence that boards have a clear idea of the early warning signs or triggers that would lead to their carefully thought through mitigation plans being put into effect. Boards should also note that we revised the Tenant Involvement and Empowerment Standard to clarify expectations on tenant consultation prior to disposals outside the sector.
"Furthermore, I hope the annex on deregulation helps inform boards of a range of considerations they may need to factor into their deliberations where they are proposing to make decisions that would previously have required consent from the regulator."