- August 2, 2021
- Posted by: R
- Category: CT Blog
From Campbell Tickell’s analysis of over 300 In Depth Assessments (IDAs), over the last six years: 63% resulted in a G1/V1 grading; 15% resulted in Regulatory Judgements remaining below G1/V1; and 18% resulted in downgrades. Reasons for post-IDA downgrades recently seem to closely match pre-Covid triggers, including, for example, unsatisfactory stress testing and recovery planning, and poor internal controls and risk management.
Here, Sue Harvey, Partner, and Annie Field, Consultant Researcher, discuss a significant milestone in the Regulator of Social Housing’s (RSH) IDA programme, presenting Campbell Tickell’s analysis and the lessons organisations can learn from Regulatory Judgements.
What can we learn from the Regulatory Judgements?
With the publication of the regular monthly Regulatory Judgements (RJ) update on Wednesday 28 July, the RSH has passed the 300 mark of RJs published following an IDA.
This process was introduced in 2015 and has become an established part of the regulatory cycle. The results of an IDA are published in the eagerly awaited (by some!) last-Wednesday-of-the-month spreadsheet, which also includes RJs that result from Annual Stability Checks and Regulatory Engagement.
So, what can we learn from the accumulated experience of those 308 assessments?
To support our work in helping clients prepare for their IDAs, CT has been tracking these results for six years and our analysis shows that:
- 63% of IDAs have resulted in a G1/V1 grading. And whilst that result represents a considerable amount of hard work, both as business as usual and in IDA preparation, the top regulatory grade is not a gold medal. It indicates full compliance with regulatory standards by the majority of the sector but clearly covers a large range of performance. We always advise leadership teams to pay close attention to the RSH’s post-IDA feedback. This can be extremely helpful in understanding how close to the G2 or V2 boundary you are. Listen carefully and start planning for your next IDA.
We always advise leadership teams to pay close attention to the RSH’s post-IDA feedback.
- 15% of IDAs have resulted in RJs remaining below G1/V1. For many that is a stable position recognising that the Board’s chosen development ambitions will always require careful management of risk (the reasoning behind the majority of V2 grades). For others, particularly those hoping to return from G2 to G1, that will have been a disappointing result. The regulator has often commented that it does not consider a G2 to be a stable position, not least because it sees the Board as being able to effect the change required if it wishes. In these circumstances, translating the post-IDA feedback into a deliverable action plan is the best and immediate first step to prepare for the next IDA.
…Translating the post-IDA feedback into a deliverable action plan is the best and immediate first step to prepare for the next IDA.
- 18% of IDAs have resulted in downgrades, including those downgrade-aka-regrade drops in viability assessments. No RJ downgrade report has ever identified just a single trigger. Most highlight two to three contributory reasons and some list six or more causes. At CT we track those reasons and have identified 40 triggers for downgrade, ranging from a lack of appropriate Board skills to poor data integrity, and from low covenant headroom to lack of transparency in dealing with the regulator. Overlaying those triggers onto our clients’ risk profiles enables us to help them focus their preparation on those areas where they can expect some regulatory questioning in their next IDA.
No RJ downgrade report has ever identified just a single trigger. Most highlight two to three contributory reasons and some list six or more causes.
- Despite the upheaval of the pandemic, the most frequently cited reasons for post-IDA downgrades in the last six months have been pretty much the same as the top triggers pre-Covid (Box 1).
|Box 1: Common reasons for post-IDA downgrades in the last six months
Preparation is key
Your Board is of course constantly striving to deliver the best outcomes for your beneficiaries under your particular circumstances. Your published RJ delivers just one element of third-party assurance to your residents, lenders and other stakeholders.
For this reason, the IDA represents a regular opportunity to enhance that public signal, and consequently good preparation will always deliver a return on the investment involved.
Furthermore, there is also considerable learning to be gained from other people’s IDAs, and in particular from others’ unfortunate slip-ups.
Here’s to the next 300!
Find out how CT can help your organisation with IDA preparation.