Regulatory Judgement on Connexus Housing Limited L4494 - November 2018

 
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Regulatory Judgement on
Connexus Housing Limited L4494

Including the following registered entities:

  Herefordshire Housing Limited LH4353
  Meres and Mosses Housing Association L4493
  South Shropshire Housing Association LH3943

                                   November 2018
Regulatory Judgement
                                                          Connexus Housing Limited L4494

Publication Details

     Reason for publication

     Governance downgrade

     Regulatory process

     Stability Check and Reactive Engagement

     Please see the definitions in Annex 1 for more detail

     Governance

     G2 (Compliant)

     The provider meets our governance requirements but needs to
     improve some aspects of its governance arrangements to support
     continued compliance

     Viability

     V2 (Compliant)

     The provider meets our viability requirements. It has the financial
     capacity to deal with a reasonable range of adverse scenarios but
     needs to manage material risks to ensure continued compliance.

Key to grades

G1 / V1   Compliant
G2 / V2   Compliant
G3 / V3   Non-compliant and intensive regulatory engagement.
G4 / V4   Non-compliant, serious failures leading to either intensive regulatory engagement
          or the use of enforcement powers.

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Regulatory Judgement
                                                     Connexus Housing Limited L4494

Provider Details

   Origins

   Shropshire Housing Limited (SHL) was established in 2007 as the non-stock
   holding group parent of subsidiaries South Shropshire Housing Association
   Limited (SSHA) and Meres and Mosses Housing Association (MMHA). The
   group was re-named Connexus Housing Limited (Connexus) in July 2017
   following a merger with Herefordshire Housing Limited (HHL) effected by HHL
   joining the group as a subsidiary. It is a charitable private company limited by
   guarantee.

   Connexus’s principal activities are the management and development of social
   housing and related services and support.

   Registered Entities

   Connexus has three wholly-owned registered provider subsidiaries, each of
   which joined the group following stock transfers. SSHA completed a full
   transfer of council stock in 1994; MMHA joined the group in 2007; and HHL
   was established via stock transfer in 2002 before joining the group as a
   subsidiary in July 2017.

   Unregistered Entities

   There are eight unregistered subsidiaries within the group:

         Enterprise4 Limited provides a range of maintenance and housing
          related services to residents, non-residents and commercial companies;

         Floreat Development Limited designs and builds affordable homes for
          the registered providers in the group;

         Floreat Living Limited builds homes for open market sale;

         Herefordshire Capital plc is a vehicle which arranges finance for HHL;

         Independence Trust provides a range of services that support people’s
          emotional and physical wellbeing;

         Rise Partnership Developments Limited provides design and build
          services to the group under a development agreement;

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Regulatory Judgement
                                                Connexus Housing Limited L4494

      Shropshire Housing Treasury Limited is a vehicle which arranges
       finance for the group; and

      Total Response Limited provides repairs, maintenance and other
       property services to SSHA, MMHA and external customers.

Geographic Spread and Scale

The group manages around 10,500 homes located in Shropshire,
Herefordshire and the border area of England and Wales.

Staffing and Turnover

The group employed 546 full-time equivalent staff, and reported turnover of
around £56.7m in 2017/18.

Development

The group has set an ambition to develop around 1,400 homes over the next
four years across a range of tenures including social and affordable rented
units, shared ownership properties and units for open market sale.

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Regulatory Judgement
                                                    Connexus Housing Limited L4494

Regulatory Judgement

    This regulatory judgement downgrades our previous published regulatory
    assessment of Connexus’ governance.

    Connexus continues to meet the requirements on governance set out in the
    Governance & Financial Viability standard. However it needs to improve
    aspects of its governance arrangements to ensure continued compliance.

    As a result of a whistle-blowing allegation, the Connexus board
    commissioned an external review which identified shortcomings in the
    governance arrangements within the group and particularly within SHL and its
    subsidiaries prior to the merger with HHL. The review identified historical
    weaknesses in governance by the SHL board and executive management
    team who failed to ensure that effective risk management and internal
    controls around procurement and probity were in place. The organisation had
    also failed to implement internal audit recommendations to enhance these in
    a timely manner. SHL’s arrangements for oversight and control of the
    development programme delivered through its non-registered entities were
    not effective. Consequent risks to the organisation were exacerbated by a
    culture at a senior level which lacked awareness and understanding of the
    organisation’s governance arrangements and the regulatory environment
    within which it operates.

    Although the new group was formed in July 2017, Connexus’s board was
    unaware of these issues relating to SHL until May 2018 following receipt of
    the whistle-blowing allegation. The board acted in a prompt manner when
    these issues came to its attention. It has sought, and acted upon, appropriate
    specialist advice, and been transparent with the regulator. In conjunction with
    the interim executive management team the board is working on an action
    plan to address the weaknesses identified, including cultural issues, and to
    provide assurance around the board’s future oversight of the development
    programme. Given Connexus’ proposed development programme, and risks
    associated with this, effective oversight of development is essential.

    The regulator’s assessment of Connexus’ compliance with the financial
    viability element of the governance and financial viability standard is
    unchanged. The viability grading of V2 reflects a strategic decision by the
    board at the time of the merger to increase the number of new homes it plans
    to develop to meet local demand. Connexus’ strategy entails a significant
    increase in debt-funded development, a material part of which comprises
    units for market sale, thereby increasing the group’s overall risk profile. As a
    consequence, Connexus’ future plans assume substantial sales receipts. The
    group will need to manage this increased exposure to the housing market in
    order to maintain its long term viability.

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Regulatory Judgement
                                                       Connexus Housing Limited L4494

Annex 1: Definitions of Regulatory Processes

   In Depth Assessment (IDA)

   An IDA is a bespoke assessment of a provider’s viability and governance,
   including its approach to value for money. It involves on-site work and
   considers in detail a provider’s ability to meet its financial obligations and the
   effectiveness of its governance structures and processes.

   Stability Checks

   Based primarily on information supplied through regulatory returns, a stability
   check is an annual review of a provider’s financial position and its latest
   business plan. The review is focused on determining if there is evidence to
   indicate a provider’s current judgements merit reconsideration.

   Reactive Engagement

   Reactive engagement is unplanned work which is triggered by new intelligence
   or a developing situation which may have implications for a provider’s current
   regulatory judgement.

   Stability Checks and Reactive Engagement

   In some cases, we will publish narrative regulatory judgements which combine
   intelligence gained from both Stability Checks and Reactive Engagement.

   Further Information

   For further details about these processes, please see ‘Regulating the
   Standards’ on https://www.rsh.gov.uk

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