Decision

Previous regulatory judgement: WATMOS Community Homes (31 March 2021)

Updated 15 November 2023

Applies to England

RSH Narrative Regulatory Judgement

• Provider: WATMOS Community Homes
• Regulatory code: L4383
• Publication date: 31 March 2021
• Governance grade: G2
• Viability grade: V2
• Reason for publication: Governance downgrade
• Regulatory route: In Depth Assessment

This regulatory judgement downgrades our previous assessment of WATMOS Community Homes’ (WATMOS) governance to G2 and confirms our existing V2 assessment for financial viability.

WATMOS continues to meet the requirements on governance set out in the Governance and Financial Viability Standard. However, following an In Depth Assessment (IDA), we have concluded that it needs to improve aspects of its governance arrangements to support continued compliance.

The board is not currently operating at a sufficiently strategic level to ensure that the provider’s agreed strategy reflects its current activities, and that it is being delivered in a cost-effective manner. WATMOS needs to strengthen its assurance on the capacity and skills mix on its board to ensure that it is operating with an appropriate degree of skill, effectiveness, and foresight.

WATMOS needs to strengthen its stress testing to better inform its business planning. Whilst single and multi-variant stress testing has been conducted, these tests do not demonstrate resilience against some of WATMOS’ specific risks. There is also limited comparison to loan covenants. WATMOS has not identified formal trigger points at which the board would need to take action, and only limited mitigation strategies are in place.

WATMOS also needs to strengthen its risk management to ensure there is sufficient focus on strategic risks to the delivery of long-term plans, including on risks relating to health and safety objectives.

The quality of reporting to the board requires improvement to facilitate more effective monitoring of performance against the provider’s strategic aims. A limited range of targets in both internal and external reporting restricts the ability of the board and other stakeholders to assess strategic performance, including its record on delivering value for money.

The regulator’s assessment of WATMOS’ compliance with the financial viability elements of the Governance and Financial Viability Standard is unchanged. Based on evidence gained from the IDA, the regulator has assurance that WATMOS’ financial plans are consistent with, and support, its financial strategy. The provider has an adequately funded business plan and is forecast to continue to meet its financial covenants.

WATMOS has the financial capacity to deal with a reasonable range of adverse scenarios but has material risks which it needs to manage in relation to increased planned maintenance expenditure. As a result, WATMOS will have reduced financial capacity to deal with adverse scenarios and needs to manage cashflows to ensure continued covenant compliance.

Other providers included in the judgement

None

About the provider

Origins

WATMOS was formed by a transfer of eight Tenant Management Organisations (TMOs) from Walsall Council in 2003, with two TMOs subsequently merging. In 2012, three TMOs based in Lambeth also joined the group.

WATMOS’ board has a tenant majority. Its strategic focus is the investment and maintenance of general needs social housing stock and the provision of services to tenants.

Registered Entities

WATMOS is the only registered entity in the group.

Unregistered Entities

WATMOS has ten unregistered entities, each one a TMO serving its local housing estate.

Geographic Spread and Scale

WATMOS owns and manages around 2,600 properties in Walsall and Lambeth.

Staffing and Turnover

WATMOS employed the full time equivalent of 89 staff and reported turnover of £15.3m in 2019/20.

Development

WATMOS’ development programme is not material.

About our judgements

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.

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 information 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 evidence gained from both Stability Checks and Reactive Engagement.

For further details about these processes, please see ‘Regulating the Standards’.