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Report on Cosmopolitan's near collapse says HCA must get its judgements right

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Report on Cosmopolitan's near collapse says HCA must get its judgements right

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Published by Max Salsbury for 24dash.com in Housing and also in Finance

Report on Cosmopolitan's near collapse says HCA must get its judgements right Report on Cosmopolitan's near collapse says HCA must get its judgements right

An independent report into the near financial collapse of social landlord Cosmopolitan Housing Group has concluded that the Homes and Communities Agency must make sure its judgements truly reflect reality.

Altair Consultancy and Advisory Services' report found that in 2012, due to a number of problems coming to a head, Cosmopolitan almost became insolvent.

With the support of the HCA, the 14,000-home provider was rescued by Sanctuary Group.

The rescue allowed tenants to keep their homes and kept housing stock in the social housing sector, while tax-payers’ money was protected.

Commissioned by the HCA and Sanctuary, Altair's report discovered that Cosmopolitan’s problems resulted from a combination of individual errors over many years.
The social landlord committed to an over-ambitious development programme without funding in place, which led to liquidity problems.

Additionally, historic leases on student housing had cross-guarantees against social housing assets and were wrongly accounted for in the accounts. The provider's governance and management were weak, and problems were not identified and put right.

To avoid another Cosmopolitan catastrophe, the report – ‘Cosmopolitan Housing Group: Lessons Learned’ - recommends that all registered providers of social housing need to make sure that they:

 Have skilled boards, which understand how to govern a complex business.
 Have finance and risk expertise at board and executive level.
 Retain corporate knowledge.
 Have accurate information about business assets and liabilities.

Meanwhile, the HCA should:

 Make sure that regulatory judgements truly reflect the position of the landlord.
 Have people with the right skills and resources, who understand the sector and have sufficient resources to deal with a crisis.
 Prepare for a potential crisis by scenario-testing.

The report’s authors also suggest that the government should review the legislative framework to enable the HCA to act much more quickly in a crisis.

Dr Fiona Underwood, Altair partner and report author, 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 future can be reduced.”

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 problems that developed at Cosmopolitan demonstrate the importance of our message to Boards that they need to have an iron grip on risk. And 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, which mean we would expect to identify similar problems at a Provider at a much earlier stage than previous regulators did at Cosmopolitan.”

Responding to report, Grainia Long, chief executive at the Chartered Institute of Housing, said: “The eventual rescue of Cosmopolitan marked a successful resolution to a critically important period for the housing association sector. It protected tenants, their homes, public and private investment in Cosmopolitan and the wider track record and reputation of the housing association sector.

“This was a welcome result, but, as the report makes clear, it is important to recognise that this rescue was preceded by serious failings in governance and control at Cosmopolitan which were not immediately effectively picked up by the regulator.

“The report is an extremely careful and thorough piece of work – it does not leap to conclusions or offer quick fix solutions and neither should we. It is crucially important that the housing association sector and the wider housing industry reflects deeply on the wide-ranging implications of Cosmopolitan and takes seriously the recommendations in this report so that governance, control and regulatory arrangements are better placed to prevent a similar crisis occurring in the future.”

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