As Wales moves to a more risk-based approach to regulation, what lessons can be learned from problems elsewhere? Judy Wayne reports
Altair, the housing and regeneration consultancy, and Devonshires solicitors brought together regulators, funders and funding advisers, housing association and other senior executives to ‘learn from problem cases’. As the horror stories unfolded, there was quite a lot of disbelief that the housing associations concerned failed to see what was coming. It couldn’t happen in Wales, could it? Then, as Tim Blanch reminded people, over 25 years ago we had our own calamity with the collapse of Corlan.
We had Julian Ashby, chair of the Homes and Communities Agency (HCA) Regulation Committee talk about some of the recent English problem cases where the regulator has got involved. Financial problems included: sufficient finances, insufficient security; insufficient funds for the scale of regeneration required; unrealistic savings included in business plans; weak cash-flow; failure to comply with covenants – the list goes on. As he commented, it doesn’t take very much these days to put a housing association into a difficult conversation with lenders.
Governance
He also said that if there is something seriously wrong there is a fault with governance. The HCA insists on an independent governance review to an agreed HCA brief and requires sight of the report of findings at the same time as the board.
The governance reviews pinpointed where the responsibility and accountability for problems lay, and what needed to be done to tackle them. A pattern emerged from associations as they tackled problems – new chairs and board members appointed, the departure of the chief executive and finance director, etc. In some cases, remaining independent was no longer viable and a stronger partner was sought.
It will be a significant challenge in Wales should one of the larger associations ever need rescuing. Wales does not have its equivalent of a Sanctuary Housing Association with its very deep pockets.
Gayna Jones, independent member on the Welsh Regulatory Board, provided an update on proposals to change regulation in Wales to a more risk-based approach (see Hugh Thomas’s article). This is definitely the direction of travel. By the time that this article appears in WHQ, it is anticipated that Welsh Government will have issued its first publication on the sector risks facing housing associations in Wales.
So, following the lessons learned discussions, what might we expect it to include? Look out for an expectation of strengthened governance – enhanced board skills and executive leadership qualities; more focus on financial acumen by boards – understanding of covenants, gearing, liquidity, debt, costs etc – and a greater focus by the regulator on the responses of the sector.
Welsh associations may not be immune to the risks facing the sector, but they can do a lot to manage them and maintain the good reputation of the sector.
Judy Wayne is a director with Altair and can be contacted on 029 2037 7268 and at judy.wayne@altairltd.co.uk