Navigating the IDA process for social housing

Maxine Loftus from the Regulator of Social Housing (RSH) joined our panel of experts, for our series of Spotlight on Social Housing webinars in June 2021.

In this session, Maxine set out the key issues and risks that the RSH expects Boards to be managing, and areas where Registered Providers (RPs) can expect a greater challenge from the Regulator in the future as it evolves its approach to regulation.

The IDA process

It is well-known that the In-depth Assessment (IDA) process attracts the most attention, particularly when downgrades and re-grades are published. However, this session provided a timely reminder of the importance that the RSH places on the Quarterly Surveys (QS) as a critical tool in identifying short-term issues on liquidity and covenant compliance at an RP level, and on aggregate for short-term sector-wide issues. This is another reminder of the importance of timely and accurate data submissions to the RSH and how RPs gain assurance over the quality and accuracy of the data contained within the submission. Inaccuracies or errors can be an indicator of other issues with the quality of an RP’s underlying data, its control environment and its approach to data governance.

Onto the IDA process itself, following the completion of the first round of IDAs for all RPs with over 1,000 units, the RSH commissioned a piece of independent research surveying all RPs assessed. One of the most enlightening findings was the fact that 60% of RPs made further changes to their stress-testing and mitigation planning following the IDA, irrespective of the result. This perhaps illustrates where there is an under-estimation of just how much work is expected here, and the extent of the challenge providers need to apply to their assumptions and their recovery planning.

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Round two of the IDA process

The focus of the RSH’s first round of IDAs has very much been based around gaining an understanding of the structure and financing of RPs, their activities and how financial risks can crystalise within their structures. The first round of IDAs provides a baseline for the RSH and the focus of the second round is likely to be on:

  • How RPs are responding to changes in their operating environment, particularly around stock quality and stakeholder transparency;
  • RPs can expect detailed probing of how their governance arrangements are delivering their strategic objectives and outputs. 

On one level the latter may appear obvious, but it is clear from some of the recent downgrades seen over the last 12 months that some RPs struggle to demonstrate clearly.

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Potential ‘warning flags’ in this area include:

  • Areas where there are not sufficiently clear and precise strategic aims;
  • Vague plans, and vague targets which cannot be easily or clearly and demonstrably measured;
  • Under-utilisation of the RP’s financial resources (whether knowingly or not);
  • A lack of clarity over what success looks like on the part of the Board.

Decision-making & data

RPs should also expect greater scrutiny around decision-making, the data supporting it and how this informs the strategic choices they make. As the operating environment for RPs continues to present a wide range of challenges and opportunities, most Boards will be faced with difficult choices to make. The Regulator will be interested in the quality of the data informing these key strategic decisions of the Board. There is an expectation of detailed modelling that supports how resources are employed and optimised to deliver the RP’s strategic purpose.

Good, reliable data is needed to demonstrate this to external parties. In the short and medium-term, stock condition data will be of critical importance, given a growing number of critical decisions will be expected to be made around the existing stock.

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It is already well-known that poor data quality is often a common source of regulatory downgrades. The evolution in emphasis from the RSH was clear here – there will be closer scrutiny on how much control Boards have over their data and the assurances they receive.

Commercial activities

Another aspect of decision-making is around the choices RPs make around their involvement in commercial ventures and the nature of those ventures. The RSH will be interested in the Board’s strategic choices in this area and the extent to which these align with the provider’s strategic objectives. It goes without saying that RPs should demonstrate a risk-based appraisal before entering new commercial ventures, with an honest appraisal of the potential upsides and downsides. RPs can also expect challenges around:

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Watch the full webinar here:

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