The sector must learn the lessons from the problems at Cosmopolitan Housing Group (CHG), according to an independent report.
The report, Cosmopolitan Housing Group Lessons Learned, commissioned by the Homes and Communities Agency, concludes that the primary cause of the problems at Cosmopolitan was a serious failure of governance over a number of years. However there are lessons for all in the sector, including the HCA as current regulator.
While the actions of the HCA and others uncovered the extent of the problems at Cosmopolitan and ultimately saw social housing assets protected, the report also concludes that previous regulators had failed to appreciate the severity and cumulative impact of the risks within CHG.
Matthew Bailes, Director of Regulation at the HCA, said: “We welcome the independent report, which acknowledges the role of the regulator in protecting social housing assets but nevertheless contains lessons for all in the sector, including the regulator.
“The HCA Regulation Committee had begun strengthening regulatory capacity before problems at Cosmopolitan crystallised, including changes to the Regulatory Framework, additional senior staff capacity and improved accountability, and new Regulatory Judgements for all providers.
“These, and the other steps we have taken, mean we would expect to identify similar problems at a Provider at an earlier stage than previous regulators did at Cosmopolitan.
“The problems that developed at Cosmopolitan demonstrate the importance of our message to Boards that they need to have an iron grip on risk. Nevertheless, as regulator we need to keep pace with a sector that is becoming more complex and diverse, which is why we have already taken action that addresses a number of the report’s specific recommendations.”
Fiona Underwood, who as lead consultant at Altair compiled the report on behalf of the regulator, said: “This was a near-miss for the social housing sector that was avoided thanks to the sheer hard work put in by those who brought Cosmopolitan back from the brink of a crisis. The important thing now is for everyone in the sector to take note of and act on the recommendations in the report so that the potential risk of another Cosmopolitan happening in the future can be reduced.”
The Report makes recommendations for providers and the regulator across 6 areas: skills and resources, information requirements, risk management, mergers, crisis, and future regulation.
Having taken steps to strengthen regulatory capacity before problems at Cosmopolitan crystallised, the HCA as current regulator has already made significant progress in meeting the report’s recommendations, having:
- Begun a formal consultation on changes to the Regulatory Framework, designed to improve the understanding and management of risk, including standards which will now require providers to:
- Undertake robust stress testing against combinations of identified risks across a range of scenarios
- Maintain a thorough and up to date record of their assets and liabilities
- Ensure that the potential impact on current and future business is taken into account before taking on new liabilities
- Ensure Board’s manage their affairs with appropriate skills, capabilities and independence.
- Undertaken a restructure which significantly reinforced senior staff capacity and accountability, and invested in the development of existing staff
- Undertaken a full review of all its assessments of providers, introduced a new more robust quality control process, and new more transparent and timely Regulatory Judgments
- Consistently raised awareness of risks the sector is facing
- Updated our project plans for our response in the event of a major financial failure.
As a number of recommendations relate to providers and government, the regulator will work with stakeholders to ensure that those recommendations are implemented as far as possible, and will issue a detailed response to the recommendations in due course.
