Securing student success: Regulatory framework for higher education in England

The information submitted by a provider to demonstrate that it satisfies this ongoing condition of registration will also be used by the OfS to monitor and report on financial sustainability under section 68 of HERA.

The OfS forms judgements as to a provider’s financial performance and position solely for its own purposes. No responsibility is accepted to the provider or any third party. Neither the provider nor any third party may place any reliance upon such a judgement.

‘Financially viable’ means that the OfS judges that there is no reason to suppose the provider is at material risk of insolvency within a period of three years from the date on which the judgement is made.

‘Insolvency’ means a provider being unable to pay its debts as they fall due.

Being unable to pay debts as they fall due has the meaning given by section123 of the Insolvency Act 1986, substituting ‘the OfS’ for ‘the court’ in section 123(2).

In judging whether a provider is at material risk of insolvency, material that the OfS may consider includes:

The OfS will have regard to the availability of financial facilities or legally binding obligations of financial support from third parties (which includes any entity that is not the provider itself). A legally binding obligation of financial support means an unqualified undertaking enforceable by court action to meet the financial obligations of the provider as they fall due, or to put the provider in funds so that it may itself meet those obligations, if the provider is unable to do so. In having such regard:

It will be for the provider to ensure that the OfS is fully informed as to its financial facilities, and it will be expected to consent to the OfS making direct enquiry of the finance provider if requested to do so. The OfS may draw inferences from a failure to provide such consent.

OfS will not place weight on a legally binding obligation of financial support from third parties unless that obligation is:

The OfS is unlikely to place significant weight on a legally binding obligations of financial support from third parties unless the third party is incorporated in the United Kingdom or in a state in which a judgement of the Courts of England and Wales may be directly enforced.

The OfS will not have regard to non-legally binding expressions of financial support from third parties, including a parent company of the provider.

‘Financially sustainable’ means the OfS judges that the provider’s plans and protections show that it has sufficient financial resources to fulfil conditions D(iii) and D(iv) for the period of five years from the date on which the judgement is made, and that it is likely to be able to operate in accordance with these plans and projections over this period.

In judging whether a provider is financially sustainable, material that the OfS may consider includes:

The OfS will have regard to the availability of financial facilities or legally binding obligations of financial support from third parties. In having such regard the OfS will consider the same material and apply the same approach as detailed above under condition D(i).

In judging whether a provider has the necessary financial resources to provide and fully deliver the higher education courses as it has advertised and as it has contracted to deliver (thus enabling students to complete their courses), material that the OfS may consider includes:

For the avoidance of doubt, this condition does not oblige a provider to continue to offer a course or part of a course that it judges to be no longer financially viable, provided in doing so it honours any obligations already entered into.

During the initial registration process the OfS will carry out a comprehensive assessment of a provider’s financial performance and position, to inform the OfS’s risk assessment under section 7 of HERA. This will enable the OfS to identify any particular pressure points and areas of risk and to ensure that the ongoing conditions of registration that are applied to the provider on registration are proportionate to regulatory risk.

A provider can demonstrate compliance with the initial condition on financial viability and sustainability by submitting satisfactory evidence of its past and current financial performance (where a provider has operated previously), as well as forecasts. The evidence²² that the OfS would normally require is:

• Full audited financial statements (for the last three years, where a provider has been in operation and providing higher education for this period, or, where a provider has been in operation for less than three years, for the period in which the provider has been in operation and providing higher education) comprising (as set out in FRS102) statement of financial position; either a statement of comprehensive income or a statement of income and retained earnings; statement of changes in equity; statement of cash flows; and notes to the financial statements. The auditor must be independent of the provider, and of the preparer of the financial statements, and be listed on the Register of Statutory Auditors.
• Financial forecast tables approved by the provider’s governing body (including the current year budget and four year forecasts for financial and student number data, as well as underlying details of any growth or divestment plans).
• Commentary to support the financial forecast tables to ensure that the OfS understands the provider’s context and the assumptions underlying its forecasts.

Where relevant, the OfS will also seek information about:

• The provider’s business plan (in particular where the provider is financially weak or new to the market, with no or only a short track record of operations and/or delivery of higher education), including robust and well evidenced forecasts and assumptions.
• Legally binding parental or other legally binding deed of undertaking, including evidence that the guarantor can fulfil the deed (if a provider is relying on such a guarantee to meet the condition) – this may include audited financial statements where the guarantor is a company or similar entity (see paragraph 403 above for what guarantees are acceptable) and proof of the guarantor’s identity and funding sources.
• Any other relevant supporting evidence, such as endorsement by the validating body for any student numbers forecasts, access to bank and or equity finance, and any restrictions on funds (for example, by charitable trusts).

In order to demonstrate compliance with the general ongoing condition on financial viability and sustainability, providers that the OfS considers not to be posing specific risks in this area, and that are notified accordingly, will be required to report the minimum level of necessary information and data to the OfS on a regular basis. The minimum information required for this condition is:

• Full, audited financial statements as per FRS102²³ and in accordance with the OfS’s accounts direction, to be submitted on an annual basis.
• Financial forecasts, to be submitted annually for most providers. The OfS may choose to vary the frequency, depending on provider size and/or risk, and in line with condition I.

This information will be used to inform lead indicators, described in part III above.

In addition, under condition F3, a provider is required to inform the OfS of any changes that might affect its ability to comply with the general ongoing conditions, including this condition.

If any of the lead indicators, or any other information available to the OfS, trigger concerns that the provider’s risk profile in this area has changed, and/or that the provider may be at increased risk of no longer fully complying with the condition, the OfS may request further information, and may revisit the initial, comprehensive assessment of the provider’s financial viability and sustainability.

Providers that are not considered to be at low risk of breaching this condition on registration or as a result of monitoring, may be subject to specific ongoing conditions that could be associated with additional reporting requirements, to enable the OfS to more closely monitor and mitigate the provider-specific risks. The procedure for imposing such a condition after registration is set out in section 6 of HERA.

In order to determine whether or not a provider is complying with this condition on an ongoing basis, the OfS’s judgement will be informed by the provider’s behaviour, as well as information submitted by the provider or available to the OfS.

The following are non-exhaustive examples of behaviours that may indicate compliance with this general ongoing condition:

• financial forecasts and business plans, including underlying assumptions, are credible and show how resources will be used
• the provider complies with the OfS’s accounts direction
• financial forecasts are met
• the provider operates within existing financial facilities
• invoices are paid within terms (save where disputed on substantial grounds)
• unplanned changes to courses or activities are avoided
• registration fees are paid on time
• accounts are filed on time.

The following are non-exhausted examples of behaviours that may indicate non-compliance with these general ongoing conditions:

• forecasts and/or business plans are not credible, and/or not based on accurate data and information
• the provider does not comply with the OfS’s accounts direction
• financial forecasts are not met
• new and extended financial facilities are sought and used
• existing financial facilities are revoked, not renewed, or have more onerous terms imposed on them
• invoices are not paid within terms (except if disputed on substantial grounds)
• court judgements are not paid within terms
• unplanned or disorderly changes to courses or activities are made
• accounts are overdue for filing.