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 2018Regulatory 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.
Page 2 of 6Regulatory 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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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.
Page 4 of 6Regulatory 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.
Page 5 of 6Regulatory 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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