Despite acknowledging that a “handful” of providers gives him concern, the Regulator is reluctant to give them lower financial viability ratings, fearing that doing so might trigger an upward re-pricing of their debt. Instead, the Regulator uses governance ratings to signal concerns about financial viability. This practice lacks openness and should stop, says the Report, and the Regulator should publish accurate financial viability ratings.
The fear of triggering a re-pricing also prevents the Regulator from using many of his statutory powers, preferring to adopt informal approaches instead. This lacks transparency and risks too close a relationship developing between the Regulator and providers, says the Report.
The Committee urges the Regulator to examine how other regulators have addressed his concerns that the use of statutory powers may be counter-productive.
Commenting on the Report, Clive Betts MP, Chair of the Communities and Local Government Committee, said:
“The Committee was surprised to find that what purported to be an assessment of the financial viability of housing associations was no such thing. As it stands, if a housing association was in serious financial difficulty, nobody would have a clue.
“The current approach of using governance ratings to signal concerns about financial viability lacks openness and is confusing. It is unfair to expect tenants, taxpayers and lenders to understand and decipher the Regulator’s coded messages.
“Serious questions must be asked of a Regulator unable to use his statutory powers or provide a frank assessment of providers’ financial viability. If the sector knows he will not use his formal powers the Regulator’s position and effectiveness are undermined. The Regulator must find answers, and he must do so quickly.
“I fail to believe that the situation faced by the Regulator is unique to the HCA regime. The devolved administrations’ housing regulators, not to mention regulators in other sectors, must encounter similar dilemmas. The Regulator should work with them to see how they have addressed his concern that the use of statutory powers could prove counter-productive.”
Cosmopolitan case
The Committee’s concerns are underlined by the case of Cosmopolitan Housing Group, which came close to insolvency in 2012. The Regulator only lowered its financial viability rating for Cosmopolitan in December 2012, despite the fact that he had been monitoring the situation for months and the possibility of insolvency had been raised in the media two months previously.
Commenting on the Cosmopolitan case Clive Betts said:
“The eventual downgrading of Cosmopolitan amounted to a futile exercise in locking the stable door long after the horse had bolted. It exposed the serious shortcomings of the system. It comes as no surprise to the Committee that Moody's cited the episode when downgrading all but one of the English housing associations in May this year.”
The Report also raises concerns about how effectively the Regulator is discharging his remit for consumer regulation. Noting that of 111 complaints related to consumer standards referred to the Regulator no case of serious consumer detriment was found, the Report calls for an annual external check to be carried out to provide assurance that the Regulator is discharging his duties effectively. The first evaluation should be published no later than Easter 2014, says the Report.
Clive Betts said:
“The Regulator has a key role to play in regulating consumer standards in the social housing sector. He appears, however, to have interpreted his remit in this area as narrowly as possible and we were left with the impression that he saw it as a distraction from his main job of economic regulation.
“It is not for us to judge individual cases. It is for us, however, to consider whether the Regulator has systems in place that allow him to discharge his duties effectively. We are not convinced this is the case. “An annual evaluation of the Regulator’s handling of consumer complaints should be carried out by an external, independent reviewer to ensure that it meets the criteria of independence, fairness, effectiveness, openness and accountability.”
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