How we approach regulatory judgements and gradings
What is involved in regulatory judgements and gradings
Applies to England
Regulatory judgements
Regulatory judgements are our published view of how well a landlord is delivering the outcomes of our standards. Our regulatory judgements include a summary of the reasons for the conclusions we have reached.
- For private registered providers, a regulatory judgement can cover the outcomes of any of our standards.
- For local authority landlords a regulatory judgement can cover the outcomes of our consumer standards and Rent Standard.
Each regulatory judgement takes account of multiple factors and is evidence based. In coming to a view about how well a landlord is delivering the outcomes of our standards, we consider the fairness of the decision that results in a new or updated regulatory judgement as well as those which do not result in a regulatory judgement.
When we publish regulatory judgements
For all large landlords, we publish regulatory judgements following our programmed inspections, which include a summary of the inspection findings.
For large private registered providers, we usually reflect our view of how well they are delivering the outcomes of our Rent Standard and Value for Money Standard as part of our view of their delivery of the outcomes of our Governance and Financial Viability Standard. In some circumstances we may publish a separate statement about our view on rents or value for money in a regulatory judgement.
Following a stability check, for landlords who have a G1/2 or V1/2 grade where we have not identified that there are any material risks which may result in a change to their financial viability or governance gradings, we reflect this by updating the publication date next to a landlord’s existing grade. We are transparent that this has occurred as a result of the stability check process. We may also update the regulatory judgement. Where a landlord has a G3/4 or V3/4 grade, and we identify material risks which might affect their grading or regulatory judgement we share this intelligence with regulatory staff who are already working with that landlord.
We update our published regulatory judgement of a landlord where our engagement with them leads to a change in our view, or where new issues need to be reflected in our regulatory judgement following a period of engagement with them. We set out our approach to interim judgements below.
For landlords of any size or type, we may publish decisions about serious failings in relation to any standard in a regulatory judgement. This applies whether or not we issue grades for that landlord or standard. Where we publish a regulatory judgement that there are weaknesses or failings in the landlord’s delivery of the outcomes of our standards, this published judgement will remain in effect until the landlord has given us evidence which gives us assurance that the relevant weaknesses or failings have been addressed to our satisfaction. Only at that point would we replace it with a new judgement.
Following a programmed inspection, we publish a regulatory judgement and grade for large landlords. Alongside that, where we follow up on issues through our responsive engagement, we carry out an inspection outside of our programme of inspections, or when investigating issues where there are serious failures in a landlord delivering the outcomes of our standards, we may reach a view that results in us publishing a regulatory judgement and where appropriate a consumer grade. We make clear which route we have used to inform our judgement and grading. We also make clear in the published regulatory judgement where we are issuing a grade, where the grade is based on the outcome of work which is narrow in scope for example where we have focused on one or more specific issues of concern and is not as a result of carrying out a more rounded assessment of the landlord’s delivery of the outcomes of the consumer standards overall.
Governance, viability and consumer grades
Our regulatory judgements include one or more grades for all large landlords.
- For private registered providers, these grades are our view of how well they are delivering the outcomes of the Governance and Financial Viability Standard and the consumer standards.
- For local authority landlords, this grade is our view of how well they are delivering the outcomes of the consumer standards.
We do not issue grades to small landlords. However, where we consider there to be serious weaknesses or failings in a landlord’s delivery of the outcomes of our standards, we may publish or update a regulatory judgement to reflect this.
Governance grades
There are four governance grades:
| Grading | Description |
|---|---|
| G1 | Our judgement is that the landlord meets our governance requirements. |
| G2 | Our judgement is that the landlord meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance. |
| G3 | Our judgement is that the landlord does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the landlord is working to improve its position. |
| G4 | Our judgement is that the landlord does not meet our governance requirements. There are issues of serious regulatory concern, and the landlord is subject to regulatory intervention or enforcement action. |
G1 and G2 grades
All landlords should aim for a G1 grade. In most cases this means that:
- their governance arrangements are working effectively in practice to identify and manage financial and non-financial risks including those that impact most on tenants and the organisation
- they can show with evidence, that they are delivering against their purpose and strategic objectives and where they are not that they take corrective action.
We expect that even where a landlord is assessed as G1 it will continue to review, evaluate and improve its governance.
Where we judge a landlord to be G2 this is because we have identified some weaknesses in its governance arrangements which we consider to be significant to the delivery of the relevant outcomes of our standards which it needs to address.
We expect landlords assessed at G2 will
- take steps to identify the underlying causes for the weaknesses
- put in place a comprehensive and timely plan to address those weaknesses.
G3 and G4 grades
A G3 grade means that the landlord is not delivering the outcomes of the Governance & Financial Viability Standard and there are issues of serious regulatory concern. In this situation we will be engaging with the landlord.
A G4 grade also signifies that the landlord is not delivering the outcomes of the Governance & Financial Viability Standard and there are serious issues of regulatory concern. It is applied where the severity of the governance failures is such that we are actively intervening and/or we may consider it appropriate to take enforcement action.
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Viability grades
There are also four viability grades:
| Grading | Description |
|---|---|
| V1 | Our judgement is that the landlord meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios. |
| V2 | Our judgement is that the landlord 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 | Our judgement is that the landlord does not meet our viability requirements. There are issues of serious regulatory concern and in agreement with us the landlord is working to improve its position. |
| V4 | Our judgement is that the landlord does not meet our viability requirements. There are issues of serious regulatory concern, and the landlord is subject to regulatory intervention or enforcement action. |
V1 and V2 grades
Landlords at V1 have given us enough evidence to assure us that they are delivering the viability outcomes of the Governance and Financial Viability Standard. In most cases it will mean they will have:
- a strong financial profile, built on robust and prudent assumptions, demonstrating adequate headroom against their financial covenants and appropriate levels of liquidity.
- capacity in their financial plan which makes them more resilient to any financial risks and we will have evidence that provides us with the assurance that if the risks they have identified happen, the impact can be mitigated successfully by the landlord in most circumstances.
Landlords at V2 have also given us enough evidence to assure us that they are delivering the viability outcomes of the Governance and Financial Viability Standard. However, we consider that their financial profile means that if the risks they have identified happen, then it may be more difficult for them to mitigate the impact successfully. These risks may include changes in market conditions beyond the landlord’s control.
V3 and V4 grades
Landlords at V3 have been unable to give us enough evidence to assure us that they are meeting the viability outcomes of the Governance and Financial Viability standard, and there are issues of serious regulatory concern. For example, these might be serious concerns about whether the landlord is appropriately assessing, managing and addressing risks to ensure its long-term viability. In these circumstances we will be working closely with the landlord in order that they remedy the issue as soon as possible.
Landlords at V4 are most likely to be in serious financial difficulty and we will be working with them and others, as appropriate, to remedy the situation. This may include using our regulatory or enforcement powers.
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Consumer grades
There are four consumer grades:
| Grading | Description |
|---|---|
| C1 | Our judgement is that overall the landlord is delivering the outcomes of the consumer standards. The landlord has demonstrated that it identifies when issues occur and puts plans in place to remedy and minimise recurrence. |
| C2 | Our judgement is that there are some weaknesses in the landlord delivering the outcomes of the consumer standards and improvement is needed. |
| C3 | Our judgement is that there are serious failings in the landlord delivering the outcomes of the consumer standards and significant improvement is needed. |
| C4 | Our judgement is that there are very serious failings in the landlord delivering the outcomes of the consumer standards. The landlord must make fundamental changes so that improved outcomes are delivered. |
C1 and C2 grades
All landlords should aim for a C1 grade. Landlords at C1 have provided us with enough evidence to assure us that overall they are delivering the consumer standards outcomes. This means that in delivering the outcomes of the consumer standards:
- they are making effective use of their own systems to identify and address potential issues and areas for improvement. This includes improvements to their stock and the services they provide to tenants
We expect that even where a landlord is assessed as C1 it will continue to review, evaluate and improve its services to tenants.
Where we judge a landlord to be C2 this is because we have identified some weaknesses which we consider are material to the landlord’s delivery of the outcomes of the consumer standards, which if not addressed, are likely to lead to poor outcomes for tenants.
We expect that landlords graded at C2 will develop a plan to drive relevant improvement and will be able to show that weaknesses have been addressed so that outcomes for tenants are improved. We expect landlords to share relevant improvement plans with tenants.
C3 and C4 grades
A C3 grade means that there are serious failings in the landlord delivering the outcomes of the consumer standards, which the landlord’s current arrangements are not strong enough to put right. This will be significantly impacting on service outcomes for tenants and/or accountability to tenants. We expect the landlord to develop a plan that will drive significant change and to share that with tenants. Our engagement with the landlord will be intensive and we will seek evidence that gives us the assurance that sufficient change and progress is being made.
A C4 grade means that failings are so serious that the landlord must make fundamental changes so that improved outcomes are delivered. It is likely that the landlord has not shown the willingness and/or ability to put things right, and so we may decide to take enforcement action.
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Changes to grades
We use the terms upgrade and downgrade to describe the changes to a landlord’s gradings. The exception to this is where a landlord’s viability grading moves between a V1 and a V2 which we refer to as a regrade. This reflects our view that a landlord is managing a higher level of risk exposure in their organisation, but they can give us enough evidence to assure us that they are delivering the viability outcomes of the Governance & Financial Viability Standard.
Judgements and gradings under review
If we are investigating a landlord due to suspected serious failings, we may place them on our gradings under review list. This is likely to be where our engagement is ongoing and we think it is appropriate to alert stakeholders to the fact that we have serious concerns about that landlord’s delivery of the standards outcomes, which we are investigating. Once we finish investigating, if appropriate we publish a new or updated regulatory judgement for the landlord. We then remove it from the gradings under review list. We may not always consider it appropriate to place a landlord on our gradings under review where we are investigating serious failings. We may conclude our investigation and publish a regulatory judgement without doing so.
Publishing our views outside regulatory judgements
From time to time, we may decide to publish our view about an issue relating to one or more landlords outside a regulatory judgement. We may, for example, do this to highlight its wider importance to the social housing sector. We will consider the most appropriate way to communicate our view on a case-by-case basis, but it may include for example an open letter, report or press statement.
Judgements about for-profit landlords
We publish regulatory judgements for large for-profit landlords in line with the approach set out above. However, we recognise that these landlords may have different capital structures and cash flow dynamics. They also are often subsidiary organisations within a larger group of connected companies and can rely on those connected companies to carry out their functions. While the for-profit landlord may often contribute to a wider group strategy, it must deliver the outcomes of our standards. We recognise that there is an important difference between groups headed by not-for-profit landlords and those containing for-profit landlords. We want to be transparent about that difference with stakeholders.
The capital structures, cash flow dynamics, and group relationships of for-profit landlords impacts on the nature of our views about them. Regulatory judgements relating to for-profit landlords include an explanatory statement to make it clear that our view relates to the registered for-profit landlord only. It does not represent an assessment of non-registered entities within any group or the ability of such entities to provide support to the registered for-profit landlord, although we do consider the risks to the registered for-profit landlord from its relationships with any wider group.
To provide further clarity we use an asterisk with a for-profit landlord’s grade (for example, G1, V1, C2*) to make it clear that the assessment refers to a landlord that is designated on the register as being for-profit.
Interim judgements and gradings
Where two or more existing landlords merge or a landlord undergoes what we judge to be a significant constitutional change or restructure, we may issue an interim regulatory judgement. This is so that there is an indicative public regulatory judgement of how well the landlord may be delivering the outcomes of our standards.
Our broad approach to issuing interim judgements is set out in the table below:
| Scenario | Interim judgement | Our approach |
|---|---|---|
| Two or more G1/V1/C1 landlords merge | Yes | G1/V1/C1 interim judgement unless there are specific presenting issues of regulatory concern. |
| Two or more organisations merge, at least one of which is G2 and/or V2 and/or C2 and no landlord concerned has a lower grade than these | Yes | We consider this on a case-by-case basis but our starting assumption is that the lower of the existing grades will apply (subject to the relative scale of the landlords concerned). |
| Two or more organisations merge, at least one of which has a grade of either G3 or G4 and/or V3 or V4 and/or C3 or C4) | Possibly | We consider on a case-by-case basis. |
| Merger of two or more organisations where at least one does not have an existing regulatory grade (for example, because it is demerging from a group or where we have not yet issued the landlord with a consumer grade) | Yes | We consider on a case-by-case basis. |
| Landlord undergoes what we judge to be a significant constitutional change or restructure, including a change in its ownership or other change of control, following a restructure | Possibly | We may issue an interim judgement for transparency reasons if we conclude we need additional regulatory assurance before we can publish a standard judgement. |
| Merger of a small landlord with a large landlord | No | The existing grades of the large landlord will be maintained in most cases. |
| Merger of two or more small landlords, including where one or more is failing to deliver our standards | No | We do not issue gradings for small landlords. We consider any appropriate regulatory response on a case-by-case basis. |
We will change interim grades to standard grades following a programmed inspection, or when we have carried out an assessment following responsive engagement.
We may also change an interim V1 or V2 viability grade into a standard grade when a stability check has not identified the landlord as being potentially at higher risk of failing to deliver the outcomes of the Governance and Financial Viability Standard.
Find out about current and previous RJs here: Regulatory judgements and notices, and gradings under review