Leadership Foundation

05. Regulations and compliance

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Introduction and aim

This briefing note considers regulation and compliance, and summarises the complex regulatory environment in which higher education institutions operate.

Regulation and compliance

An importance aspect of the work of a governing body is in satisfying itself that the institution is complying with all the relevant regulations and legal requirements. ‘It must therefore seek assurance that the institution meets all the legal and regulatory requirements imposed on it as a corporate body... including through instruments of governance such as statutes, ordinances and articles’.¹

A complex environment

Higher education institutions work in a complex regulatory environment. The requirements placed on institutions arise for different reasons and are overseen by a variety of agencies. The task of governors in assuring compliance is frequently demanding and time-consuming.

In practice different aspects of regulation and compliance are often examined in detail by one of the committees of the governing body, and any recommended action placed before the full governing body when its meets.

Changes to the regulatory environment

The nature of the regulatory framework for higher education institutions has multiple perspectives. Not only is the regulatory environment for higher education complex; it is dynamic.

The regulatory requirements placed on institutions are subject to change due to changes in higher education policies or events outside of the sector judged to be of wider relevance. Specifically, in England the move to a more market-orientated system and the opportunity for private providers to enter (or expand) their presence in the market place has raised significant issues about the future regulation of the sector and the need for a new regulator (eg Higher education funding council for England (Hefce)) to be created by new legislation.

Governors need to be alert to regulatory changes and ensure the institution responds appropriately, as and when required.

Governing instruments

The governing body must ensure that it is effectively discharging the requirements placed upon it by its governing instruments. These will vary according to the constitutional form under which the institution has been established and is governed. In practice the clerk or secretary will play an important role in making sure this requirement is met.

Statutory regulation

Higher education institutions are subject to a wide range of statutory regulation. Some regulation applies to all institutions, while other legislation applies to a sub-set of institutions depending on their constitutional form (eg institutions constituted as companies are subject to company law, and members of the governing body are company directors). Areas of legislation that apply broadly across the sector include:

• Accounting standards and requirements
• Employment law
• Legislation on equality and diversity
• Health and safety legislation²

Receipt of public funding

The funding bodies for higher education in each of the different national jurisdictions - Department for Employment and Learning, Northern Ireland; Higher Education Funding Council for England (Hefce); Higher Education Funding Council for Wales (Hefcw); and the Scottish Funding Council (SFC) - require institutions to agree to a funding contract in return for receiving public funding. These contracts are titled ‘financial memorandum’ or in England ‘memorandum of assurance and accountability’. They form the accountability mechanisms for institutions receiving funding and detail the requirements to which the institution is expected to comply. Institutions are required to ensure the stewardship of public funds, that they are only used for their intended purpose and spent in ways that represent value-for-money.

Funding councils ensure institutional compliance by threatening to claw-back funding or impose restrictions on the way institution can act. With the changes taking place in England, and the indirect funding of students replacing the direct funding of institutions, these sanctions risk becoming less effective. Currently Hefce’s powers do not extend to
alternative providers.

Data returns

The funding body requires institutions it funds to provide data directly to it, or if requested, to the Higher Education Statistical Agency (HESA) and, for England, the Student Loans Company (SLC). Institutions are expected to ensure the accuracy and timeliness of the data they return.

Higher Education Statistical Agency

HESA is a charitable company funded by subscriptions paid by higher education institutions. It is the principal receiver of, and repository for, statistical data for the sector, collecting data from higher education providers for all jurisdictions of the UK. The government and the funding bodies determine what data is collected by HESA.

The data is used for a variety of purposes, including the publication of official statistics and use by government. The principal data returns cover students, staff, student destinations, finance, estates and interactions with business.

Governors should check the completeness and accuracy of the returns make by the institution, as these influence, for example, the income received by the institution.

Governance codes

A requirement of institutions in receipt of public funding is that they comply with the relevant governance code. The Committee of University Chairs (CUC) revised the The Higher Education Code of Governance’. in 2014. Although intended to cover institutions across all UK jurisdictions, a separate Code of Higher Education Good Governance exists for Scotland.³ Notwithstanding differences in layout and presentation the two codes have a high degree of commonality.

Research integrity

A concordat on the standards and integrity of UK research has been developed by Universities UK with the Research Councils, funding bodies, the Wellcome Trust and a number of government departments. The requirement for institutions to adopt the concordat is contained in the funding agreement with their funding body. 

Regulation of quality

The Quality Assurance Agency (QAA) role is to safeguard academic standards and quality. QAA is a charity funded by subscription from ‘public’ higher education institutions and the different funding bodies for whom it reviews quality assurance in each of the national jurisdictions.

The power to award degrees is legally protected. Providers who wish to acquire degree-awarding powers (DAP) need to apply to the Privy Council for the power to be granted. When deciding on whether to grant DAP, the Privy Council is advised by QAA and the appropriate government minister.

Once an institution has acquired the power to award degrees, the QAA conducts periodic reviews of the institution and publishes reports on its findings. In England, the introduction of a ‘risk-based’ approach means institutions with an established track record on quality assurance will receive less frequent reviews.

Although the broad thrust of the QAA is common for all areas of the UK, there are differences of detail in terms of how its work is conducted in the national jurisdictions.

Regulation of charities

Most ‘public’ higher education institutions are exempt charities. In England these are supervised by Hefce as the principal regulator as to their public benefit objectives on behalf of the Charity Commissioners (a small number of institutions are registered and regulated directly by the Charity Commissioners).

The expectation is that institutions meet their charitable objectives, and charity assets are not placed at risk. One distinguishing characteristic of charities is that they are not able to raise capital by issuing shares.

Role of trustees

A member of the governing body of a higher education institution, which is a charity, is also trustee of the charity and expected to act accordingly. A fundamental requirement is that ‘all trustees have a legal duty to act only in the best interests of the charity’. In particular they should not put themselves in a position where their duties as a trustee conflict with any personal interest they have. To this end trustees should be mindful of any potential conflicts of interest or conflicts of loyalty where their judgment may be conflicted by being a trustee of another charity.

To reduce the risk of a conflict of interest or loyalty institutions normally maintain and make accessible a register of members’ interests, which is up-dated annually.

Standards of public life

All members of the governing bodies of public institutions should comply with the Nolan principles, which described the standards of behavior expected in public life. The principles are: selflessness; integrity; objectiveness; accountability; openness; honesty; and leadership.

Office for Fair Access (OFFA)

OFFA is funded by the Department of Business Innovation and Skills. It is ‘an independent public body that helps safeguard and promote fair access to higher education.’ All providers of higher education in England who wish to charge a full-time fee of more than £6,000 for students on publically supported undergraduate courses must have an access agreement approved by OFFA. An access agreement provides details of tuition fees and measures to support access (eg financial support offered to students from lowincome backgrounds).

Questions to consider

• How familiar are you with the regulatory requirements placed on the institution?
• Have you considered the relevant financial memorandum (or equivalent)?
• How does the governing body assure itself as to quality and accuracy of the data returns to HESA?
• Are you aware of the requirements placed on you as a trustee by charity law?
• Does the governing body regularly check that it is compliant the relevant code of governance?

End notes and further reading

1. Committee of University Chairs, The Higher Education Code of Governance, December 2014, Element 1.1
2. Further information and advice as to the role of governing bodies in respect of health and safety can be found in Leading health and safety at work, Universities and Colleges Employer’s Association and Universities Safety and Health Association.
3. The Scottish Code of Good Governance, published 18 July 2013.

September 2014
E: david.williams@lfhe.ac.uk
W: www.lfhe.ac.uk/governance
@LF4HE