News / Monitor plans simpler risk rating

Monitor is proposing a stripped down financial risk rating as part of its new assessment framework to judge providers’ risk of failing to deliver key services.

The proposed risk assessment framework (RAF) would replace the existing compliance framework, reflecting the move to a licensing regime for providers and the requirement for Monitor to assess risk to the continued delivery of NHS services.

Monitor’s proposed new regime focuses attention on commissioner requested services – broadly the same as current mandatory services – with a continuity of services risk rating used to identify the risk of providers of these services not being a going concern.

The rating would comprise just two financial metrics measuring liquidity and capital servicing capacity across four levels of risk.

Monitor said the principles behind the new framework would be familiar to FTs and ‘do not represent any significant change to the current regulatory approach’.

However, it marks a simplification compared to the five metrics in the current financial risk rating (measured on a five-point scale). And it is far simpler than an initial proposal as part of earlier licensing consultation that envisaged seven metrics and 10 levels of risk.

The regulator is also proposing a change to the definition of liquidity. Only ‘unconditionally committed lines of credit’ will count in the numerator, effectively excluding most existing working capital facilities. The thresholds on liquidity have been rebased to reflect this. The change is likely to lead to a number of FTs reviewing the need for existing facilities.

A survey by the HFMA FT Technical Issues Group at the end of last year found that an increasing number of FTs are already operating without a working capital facility (up to 12.5% of sample compared with 3% in 2011). FTs that had given up facilities said this was the result of judgements around cost justification or because it did not improve risk ratings.