Part 2: Proposals for new initial condition E7 - Effective governance

Condition E7C: Knowledge and expertise

E7C.1 The provider must have key individuals who have sufficient knowledge and expertise to facilitate the provider to:

1. comply with the ongoing conditions of registration applicable to it (if registered);
2. deliver, in practice, the provider’s business plan; and
3. deliver, in practice, the provider’s fraud and public money arrangements.

E7C.2 For the purposes of the requirement in paragraph E7C.1, “key individuals” means all of the following:

1. the individual(s) proposed as the chair(s) of the provider’s governing body;
2. the individual proposed as the accountable officer for the purposes of ongoing condition of registration E3;
3. the individual(s) proposed to hold overarching responsibility for the management of the provider’s financial affairs; and
4. where the provider is applying for registration in the Approved (fee cap) category, the individual proposed as the independent member of the provider’s governing body.

E7C.3 For the purposes of the requirement in paragraph E7C.1, “sufficient knowledge and expertise”, in relation to the key individuals, includes (but is not limited to) that, in the OfS’s judgement:

1. the individual(s) proposed as the chair(s) of the provider’s governing body has:
   1. a sound understanding of:
      1. the following matters set out in the provider’s business plan:
         1. the provider’s business objectives and targets;
         2. the provider’s strategy for achieving its business objectives and targets;
         3. any risks arising from assumptions made by the provider in the formation of its business plan which could affect its ability to achieve its business objectives and targets; and
         4. how the provider plans to manage those risks.
      2. the provider’s set of governing documents, including any provisions which authorise or obligate the individual to act on behalf of the provider; and
      3. the regulatory requirements imposed by ongoing condition of registration E3 and associated guidance;
   2. sufficient awareness of:
      1. the characteristics of the cohorts of students the provider has recruited and/or intends to recruit for its planned higher education provision and the academic needs of those students, as set out in its business plan;
      2. how the higher education system in England functions and the context of the sector in which the provider plans to operate;
      3. regulatory requirements imposed by the OfS and associated guidance (beyond ongoing condition of registration E3 and associated guidance);
      4. action that the OfS can take to address a breach of its regulatory requirements or an increased risk of breach; and
      5. the provider’s fraud and public money arrangements and any obligations these place on how the individual carries out their duties, including, but not limited to any obligations to act if they find evidence of fraud or misuse of public money; 
   3. sufficient knowledge and expertise to enable the individual to provide effective leadership of the provider’s governing body;
2. the individual proposed as the accountable officer for the purposes of ongoing condition of registration E3 has:
   1. a sound understanding of:
      1. all elements of the provider’s business plan;
      2. how the higher education system in England functions and the context of the sector in which the provider plans to operate;
      3. the provider’s set of governing documents including any provisions which authorise or obligate the individual to act on behalf of the provider;
      4. action that the OfS can take to address a breach of its regulatory requirements or an increased risk of breach; and 
      5. the provider’s fraud and public money arrangements and any obligations these place on the individual, including but not limited to how the individual carries out their duties, or any obligations to act if they find evidence of fraud or misuse of public money;
   2. sufficient awareness of:
      1. regulatory requirements imposed by the OfS and associated guidance; and
      2. the role of any other public authority or government body with which the provider may interact if registered (including but not limited to the Office of the Independent Adjudicator for Higher Education and, if relevant, the Student Loans Company Limited and the Home Office), and the nature of possible interactions;
   3. sufficient knowledge and expertise to enable the individual to provide effective leadership and management of the provider and its activities.
3. the individual(s) proposed to hold overarching responsibility for the management of the provider’s financial affairs has:
   1. a sound understanding of:
      1. the financial elements of the provider’s business plan;
      2. any business objectives and targets (where these could relate to financial matters, including but not limited to the provider’s financial targets) and the provider’s strategy for achieving those objectives and targets, as set out in the provider’s business plan;
      3. regulatory requirements imposed by the OfS and associated guidance in relation to financial matters (including, but not limited to requirements for reportable events and financial reporting and data returns); and
      4. the provider’s fraud and public money arrangements and any obligations these place on how the individual carries out their duties, including but not limited to any obligations to act if they find evidence of fraud or misuse of public money;
   2. sufficient awareness of:
      1. how the higher education system in England functions and the context of the sector in which the provider plans to operate; and
      2. the provider’s set of governing documents, including but not limited to any provisions which authorise or obligate this individual to act on behalf of the provider;
4. the individual proposed as the independent member of the provider’s governing body has:
   1. a sound understanding of:
      1. the following matters set out in the provider’s business plan:
         1. the provider’s business objectives and targets;
         2. the provider’s strategy for achieving its business objectives and targets;
         3. any risks arising from assumptions made by the provider in the formation of its business plan which could impact its ability to achieve its business objectives and targets; and
         4. how the provider plans to manage those risks;
      2. the provider’s set of governing documents including any provisions which authorise or obligate the individual to act on behalf of the provider; and
      3. the provider’s fraud and public money arrangements and any obligations these place on how the individual carries out their duties, including but not limited to any obligations to act if they find evidence of fraud or misuse of public money, and the individual’s role in providing scrutiny over, and challenge of, these arrangements;
   2. sufficient awareness of:
      1. the characteristics of the cohort of students the provider has recruited and/or intends to recruit for its planned higher education provision and the academic needs of those students, as set out in its business plan; and
      2. the regulatory requirements imposed by ongoing condition of registration E3 and associated guidance;
   3. sufficient knowledge and expertise to enable the individual to provide effective scrutiny over, and challenge of, activities of the provider and its governing body.

Further definitions

E7C.4 For the purposes of condition E7C:

1. “business objectives and targets” has the meaning given by E7B.6;
2. “fraud and public money arrangements” means the arrangements as required under condition E7E.2;
3. “governing body” has the meaning given by section 85 of the Higher Education and Research Act 2017;
4. “independent member” means an external member of the provider’s governing body who is independent of the provider;
5. “business plan” means a business plan as required under E7B;
6. “public authority” has the meaning given in section 6(3) of the Human Rights Act 1998;
7. “set of governing documents” means the set of documents which govern the operation of the provider as required under E7A.1.

Conditions E7C.1 and E7C.2

1. Paragraph E7C.1 sets out that key individuals must meet minimum knowledge and expertise requirements. The minimum requirements differ depending on the individual’s role and responsibilities.

Key individuals

2. The individual or individuals proposed to hold overarching responsibility for the management of the provider’s financial affairs would typically be the person holding a role such as the Director of Finance or Chief Financial Officer, where such a role exists within the provider. In a smaller provider, it may be the person proposed as the accountable officer or another senior staff member. The OfS expects that the provider’s senior leadership team will have an individual or individuals with this overarching responsibility.
3. A provider must have an individual in this role with the knowledge and expertise to exercise overarching financial oversight and strategic financial decision making. The individual is not required to have the practical financial skills to, for example, prepare the provider’s financial statements. The individual with overarching responsibility for the management of the provider’s financial affairs would be expected to understand the provider’s arrangements, and to gain assurance that they are adequate, but does not necessarily need to be the person who produces financial statements in practice.
4. An individual may fulfil more than one of the roles listed under the ‘key individuals’ definition in E7C.2. For example, the person proposed as the provider’s accountable officer may fulfil the financial management role. In these cases, the OfS will assess that individual against all the knowledge and expertise requirements relevant to each role.
5. A provider applying for registration in the Approved (fee cap) category must make provision for at least one independent member on its governing body in its set of governing documents (under the governing documents requirement of initial condition E7). The relevant independent member must demonstrate sufficient knowledge and expertise to fulfil the role. Where a provider has more than one independent member of its governing body, only one must meet the relevant knowledge and expertise requirements. The provider may choose which independent member to nominate for this purpose. This requirement does not apply to a provider applying for registration in the Approved category.
6. Where a provider intends to establish one of the roles defined as a ‘key individual’ but has not yet recruited an individual, the provider will need to demonstrate how it will make sure that the individual it appoints has the required knowledge and expertise.

Condition E7C.3

Definitions of ‘sufficient awareness’ and ‘sound understanding’

7. The requirement for an individual to have ‘sufficient awareness’ of a subject sets a minimum threshold for the level of knowledge they should have about a subject. Sufficient awareness is limited to broad, high-level knowledge of requirements, plans, policies, or other listed matters rather than in-depth knowledge of the relevant subject matter. It would not need to include knowledge of the practical, operational steps necessary to ensure compliance or deliver plans.
8. The requirement for an individual to have ‘a sound understanding’ of a subject sets a higher threshold. In this case the individual should have a more in-depth knowledge of a subject. It would include the broad, high-level knowledge described above, and also include a more detailed knowledge of the most important elements of a requirement, plan, policy or other listed matter. It would include, where relevant, some understanding of the practical, operational steps that the provider has in place to meet a requirement, or ensure a policy or process is consistently followed. It would not, however, necessarily require the individual to have comprehensive knowledge of all the detail, or hands-on expertise in delivering a policy or process themselves.
9. For example:
   1. In relation to the regulatory requirements imposed by the OfS:
      1. ‘Sufficient awareness’ may be demonstrated by an individual showing awareness that the OfS has a range of initial and ongoing conditions of registration, and a high-level awareness of the areas to which those conditions relate.
      2. ‘Sound understanding’ would include more detailed (though not necessarily exhaustive) knowledge of the conditions of registration that apply to the provider. This would include enough knowledge of the processes within the provider for complying with these conditions. The individual would, therefore, have confidence that the provider’s arrangements for meeting those requirements, and the people responsible for fulfilling them in practice, were likely to be sufficient. ‘Sound understanding’ would not necessarily include in-depth knowledge of the precise details or wording of individual conditions.
   2. In relation to the business objectives and targets set out in a provider’s business plan:
      1. ‘Sufficient awareness’ may be demonstrated by an individual who can articulate, in broad terms, key aims of the provider which are consistent with those set out in the business plan, particularly awareness of any significant milestones within the period of the business plan (such as the creation of a new campus or significant changes to the provider’s portfolio of courses).
      2. ‘Sound understanding’ would include more detailed and comprehensive knowledge of the provider’s objectives and targets across different business areas, and an ability to explain why these objectives are being pursued, and the strategies the provider has adopted for achieving them. ‘Sound understanding’ would not necessarily require detailed knowledge of every single objective and target, nor would it necessarily include exhaustive knowledge of the practical steps the provider is taking to achieve each objective.

Specific knowledge and expertise requirements

10. A provider’s governing body is responsible for the provider complying with all its conditions of registration. A provider’s accountable officer is the person accountable to the OfS on behalf of the governing body. As such, both the chair of the governing body and the accountable officer should have sufficient awareness of all the OfS’s regulatory requirements and associated guidance.
11. Other individuals are only expected to be aware of the parts of the OfS’s requirements which are relevant to their role. The individual proposed to hold overarching responsibility for the management of the provider’s financial affairs is only required to have sufficient awareness of the OfS’s requirements relating to financial matters. The individual proposed as the independent member of the provider’s governing body is only required to have sufficient awareness of condition E3 and the responsibilities it places on the provider’s governing body.
12. Further information about what must be included in a provider’s set of governing documents, its business plan and its fraud and public funds arrangements, are set out in E7A, E7B and E7E respectively. Key individuals are required to demonstrate an awareness or understanding of these specific documents, as defined for the purposes of those conditions. For example, the requirements relating to understanding and awareness of the provider’s set of governing documents relate only to the specific set of documents required for the purposes of E7A, and of the content that E7A specifies that those documents need to include.
13. Key individuals are required to demonstrate knowledge (either sufficient awareness or sound understanding) of how the higher education system in England functions and the context of the sector in which their provider plans to operate. The OfS would not expect an individual to have exhaustive knowledge of every element of the higher education sector. Neither would an individual be expected to demonstrate knowledge of elements of the higher education system, or context of the sector, which were not relevant to the planned activities of the provider. For example, an individual at a provider that was not planning to engage in any research activities would not be expected to demonstrate knowledge about this aspect of the higher education system. As is set out in the guidance for the business plan requirement, the OfS’s assessment would consider whether a key individual demonstrated significant misunderstandings, or made statements which were materially factually inaccurate, about the operation of the higher education system or context of the sector.
14. The OfS is unlikely to consider that an individual proposed as chair of a provider’s governing body, or as the independent member of the governing body, has sufficient awareness of how the higher education system functions, or the context of the sector, if, for example:
    1. The individual did not demonstrate awareness of key features of the higher education landscape or the provider’s segment of the higher education market. The individual might not, for example, be able to identify comparable providers that might be considered the provider’s realistic competitors.
    2. The individual was unaware of key rules and processes governing the higher education system which would affect the activities of the provider. The individual might not know, for example, about restrictions on the use of university title or degree awarding powers, or the differences between OfS funding and student support funding provided by the SLC, and the associated rules relating to fee limits.
15. A provider’s accountable officer is required to demonstrate a higher threshold of knowledge or ‘sound understanding’ of the higher education system and context of the sector. The OfS is unlikely to consider that an individual proposed as a provider’s accountable officer has this level of knowledge if, for example:
    1. They could not articulate in detail how the provider’s offer to students differed from close competitors, or the degree of competition for its target students, when discussing its recruitment strategy.
    2. They demonstrated insufficient awareness about the eligibility of its students and courses to receive different types of funding, or of the processes and organisations involved in distributing funding.
16. Where a provider interacts with any public authority or government body, an individual proposed as an accountable officer must have sufficient awareness of the body’s role. As a minimum, this awareness would include the following:
    • To co-operate with the requirements of the student complaints scheme and comply with ongoing condition of registration C2, a provider should be aware of the Office of the Independent Adjudicator for Higher Education and its role.
    • A provider intending to access student support funding must also be aware of the role of the Student Loans Company in distributing student finance.
    • A provider holding or intending to apply for a student sponsor licence should also be aware of the role of UK Visas and Immigration (UKVI) and the Home Office.
17. Sufficient awareness of ‘the nature of possible interactions’ with these public authorities includes awareness of any financial or reporting requirements these bodies will impose, the frequency and reasons for any ongoing engagement, and the awareness of the associated time, resource and financial costs. These requirements focus on the most significant public authorities or government bodies with which a provider may typically interact rather than an exhaustive list. The requirements do not extend to knowledge of professional, statutory and regulatory bodies (PSRBs) that are responsible for regulation of specific courses or subject areas that a provider may or may not choose to offer.
18. For the individual proposed as chair of the governing body, ‘effective’ leadership of the governing body means leadership that has a positive impact on provider’s decision making. This should result in better outcomes for students and taxpayers and avoid the potential adverse consequences of poor decisions.
19. To lead in this way, the knowledge and expertise that a chair of the governing body needs is likely to include a combination of matters such as:
    1. Previous experience of organisational governance and how boards operate, gained though similar positions on governing bodies or chairing committees.
    2. Sufficient seniority and confidence, derived from business leadership experience and understanding of how organisations run, to enable the individual to lead and advise others.
    3. Knowledge and understanding of the provider’s business activities and the external environment to a level of detail that would allow the individual to effectively chair discussions and facilitate decision making.
20. For the individual proposed as the accountable officer, ‘effective’ leadership and management of the provider and its activities means leadership and management that has a positive impact on the provider’s decision making and enables a provider to deliver its plans in practice. As with the chair of the governing body, this should result in better outcomes for students and taxpayers, and avoid the potential adverse consequences of poor decisions.
21. The knowledge and expertise an accountable officer is likely to need for this purpose includes, but is not limited to, previous business or non-profit leadership experience and understanding of how organisations run.
22. Any person proposed as the independent member of the provider’s governing body must have the knowledge and expertise to scrutinise and challenge the activities of the provider and its governing body.
23. The knowledge and expertise they would need is likely to include a combination of matters such as:
    1. Previous experience of holding senior management of an organisation to account, though similar positions on boards or committees.
    2. Sufficient seniority and confidence, derived from this experience, to enable the individual to challenge opinions, question information presented, hold leaders accountable for success and failure, and champion issues of concern on behalf of taxpayers and students.
    3. Knowledge and understanding of the principles of good governance.
    4. Knowledge and understanding of the provider’s business activities and the external environment to a level of detail that would allow the individual to make material contributions into discussions and decision making.
24. In determining whether any previous professional experience of key individuals demonstrates that they have sufficient knowledge and expertise for their role, the OfS will consider the relevance, length, and seniority of that experience.

Assessment

25. The OfS will assess 'key individuals' for the knowledge and expertise they require. The OfS will normally do this through interviews with the key individuals.