Decision

Current Regulatory notice: Expectations (UK) (26 September 2019)

Updated 26 September 2019

Applies to England

RSH Regulatory Notice

• Provider: Expectations (UK)
• Regulatory code: 4774
• Publication date: 26 September 2019
• Governance grade: N/A
• Viability grade: N/A
• Reason for publication: Governance and Financial Viability Standard
• Regulatory route: Reactive Engagement

Other providers included in the judgement

None

Regulatory Finding

The regulator has concluded that:

a) Expectations (UK) (Expectations) is in breach of the governance element of the Governance & Financial Viability standard.

b) Expectations has failed to ensure effective governance arrangements are in place to deliver its aims, objectives and intended outcomes for tenants. It has failed to ensure that it complies with all regulatory requirements, is accountable to stakeholders, and safeguards taxpayers’ interests and the reputation of the sector.

c) Expectations has failed to ensure it has an effective risk management and internal controls assurance framework in place; and has failed to demonstrate that it is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

There remain issues of serious regulatory concern and the regulator is considering what further action should be taken, including whether to exercise any of its powers. The regulator’s judgement is based on our ongoing engagement with Expectations. In reaching this conclusion, the regulator has also had regard to the Charity Commission’s decision to publish an Official Warning against Expectations’ now Chief Executive (formerly Chair, and trustee) in February 2019.

The Regulator’s Findings

The regulator published a regulatory notice in December 2016 setting out our conclusions that Expectations had breached the Home standard and the Governance & Financial Viability standard.

Following a dispute with the property owners in relation to the condition of the properties and rents owed, Expectations reached an agreement to hand back the properties to the head landlords. Expectations then entered into new arrangements to lease alternative properties with new head landlords. Expectations’ board has undergone significant change in this period with all trustees resigning in the period following the December 2016 regulatory notice. Limited progress was made in recruiting new trustees until, in December 2018, Expectations informed the regulator that a wholly new board had been recruited. The Chair stepped down from his position as trustee which he had held since January 2017, and was appointed by the new board as Chief Executive.

The regulator’s engagement with Expectations has taken account of its relative scale of operations and very limited capacity. However the regulator has concluded that, although some initial progress was made following our intervention, Expectations has not demonstrated any sustained improvement in its governance arrangements.

Expectations has failed to demonstrate that it is managing its affairs with an appropriate degree of skill and independence. The regulator has identified a number of significant conflicts of interest involving individual trustees and the owners of the properties which Expectations leases. Expectations has not been transparent regarding this matter and has failed to provide evidence that the conflicts were considered and managed by the board. In agreeing that the previous Chair would stand down from his position as trustee, and be immediately appointed as Chief Executive, Expectations has failed to provide evidence that this recruitment was carried out appropriately. The regulator expects boards to take steps to return to compliance as a priority, but Expectations has failed to demonstrate that it has appointed trustees that are able to run this charitable organisation with sufficient skill and independence to do so.

Expectations has also not demonstrated that it has an appropriate risk management and control framework in place. Expectations has failed to take steps to develop an effective approach to the identification of risks arising from its activities and to the management of risks. In entering into leases on further properties owned by individuals closely connected to trustees, Expectations has diversified its activities from its core client base but has not provided evidence of its consideration of the risks or that it has plans and mitigations in place to manage these, particularly in relation to safeguarding, finance and probity. Expectations has indicated its intention to acquire more properties, and to further diversify its activities. Given the significant weaknesses in governance and failure to be transparent to a range of stakeholders, the regulator has concerns about its ability to manage such growth safely, and in accordance with the Governance & Financial Viability standard.

The Governance & Financial Viability standard also requires registered providers to communicate with the regulator in an accurate and timely way. The evidence shows that Expectations does not fully understand what is expected from it as a registered provider. Engagement with the regulator is poor and on occasions it has failed to be transparent with the regulator, including most recently regarding entering into material transactions with its own trustees. On a number of occasions, Expectations’ statutory returns to the regulator have been significantly late and it has failed to comply with regulatory requirements around notifying the regulator of a tenanted disposal.

Based on its most recent statistical data return, Expectations had fewer than 1,000 units and is classed as a small provider. The regulator does not publish regulatory judgements for providers which fall into this category. Instead, in the interests of transparency, the regulator publishes a Regulatory Notice where it has evidence that a small registered provider is not meeting the regulatory standards. This notice is published under those arrangements.

Section 220 of the Housing and Regeneration Act 2008 states that the regulator’s regulatory and enforcement powers may be used if a registered provider has failed to meet a standard under section 194 of the Act. Given Expectations persistent non-compliance with the regulatory standards, the regulator is considering what further action should be taken, including whether to exercise any of its powers.

About the provider

Expectations (4774) is a small, charitable organisation providing hostel accommodation in the Birmingham area. It currently has around 60 units of social housing in shared accommodation. Expectations operates a lease-model which means it leases homes from property owners.

This regulatory notice replaces the regulatory notice published in December 2016. It updates the regulator’s view of Expectation’s governance arrangements and reflects that insufficient progress has been made in addressing the issues identified in the previous regulatory notice. This updated regulatory notice also sets out new matters of material concern identified through our ongoing intensive engagement with the provider.

About our Regulatory Notices

Regulatory notices are issued in response to an event of regulatory importance (for example, a finding of a breach of the Rent Standard or of a consumer standard that has or may cause serious harm) that, in accordance with its obligation to be transparent, the regulator wishes to make public. More detail about Regulatory notices is set out in ‘Regulating the Standards.’

Key to grades

Governance:

• G1 (Compliant): The provider meets our governance requirements
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance
• G3 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
• G4 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Viability:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• 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.
• V3 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
• V4 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.