Circular W16/21HE: Annex A
Section 1: Organisation details
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Circular W16/21HE: Annex A
Section 2: Specific questions
1. Balance of the Code
Institutions are autonomous from government and our regulation is designed to
take account of that. Ultimate responsibility for the proper stewardship of an
institution rests with its Governing Body.
However, institutions in receipt of public funds must be held accountable for
those funds.
In designing the Code, we have sought to design a regulatory framework which
allows for proper accountability and autonomy without creating excessive
regulation.
Do you agree that the code strikes an appropriate balance between
institutional autonomy and regulation?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
2. Financial viability definition
Financial viability is a key aspect of the ‘organisation and management of
financial affairs’, and its consideration is fundamental to the obligations of the
2015 Act.
It is important that all stakeholders hold a shared understanding of what we
mean when we refer to ‘financial viability’. We have not sought to provide an
exhaustive definition as there are many factors that influence financial viability
and it would be impossible to be exhaustive in our definition.
Instead, we have linked financial viability to the concept of ‘going concern’,
which we consider is a well-understood term not only in financial circles but in
the wider public understanding; that is, that an institution has sufficient funds to
meet its financial commitments as they fall due.
References to going concern within statutory accounts are usually made on the
basis of the coming 12 months; that is, that the accounts are completed on the
basis that those charged with governance believe the organisation to be a going
concern for at least 12 months beyond the date of approving the accounts.
Whilst we have used the common understanding of ‘going concern’, we have
applied this over the short to medium term. This allows for consistency with the
timescale of financial forecasts, and importantly, this timeline allows us to form
a view of viability over the length of educational programmes (such as a 3-year
degree programme). We consider that stakeholders in the HE system would
expect the regulator to consider viability over the term of a study programme.
Do you agree that the definition of financial viability should be consistent
with 'going concern' over the short to medium term?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
3. Appointment of accountable officer
We have included the requirement for the Governing Body of each institution to
designate an Accountable Officer. The Code defines an Accountable Officer as:
The officer accountable for the organisation and management of the institution’s
financial affairs and for reporting to HEFCW on behalf of the institution’s
governing body.
The new regulatory regime under the 2015 Act applies to all of an institution's
funding, including that received as tuition fees. The 'accountable officer' is
therefore accountable for compliance with the Code, which covers all 'public
funding'.
The Accountable Officer is also the senior person within the organisation with
the responsibility to meet with HEFCW at reasonable notice, and, if required, at
regular intervals.
This arrangement mirrors the arrangement that HEFCW currently operates with
Higher Education institutions in Wales, where the terms of the Memorandum of
Assurance and Accountability require an Accountable Officer to be appointed to
be accountable for any funding provided under that memorandum.
Do you agree that the governing body should appoint an officer to be
accountable to HEFCW for compliance with the terms of the Code?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
4. Governance of financial affairs
The 2015 Act states that the Code should relate to ‘the organisation and
management of financial affairs’1.
We have included some governance requirements within the Code; but have
restricted these to only those areas where we believe that they are intrinsically
and inseparably linked to the sound organisation and management of financial
affairs.
As recognised within the body of the Code, the governing body of an institution
is collectively responsible and has ultimate responsibility that cannot be
delegated for overseeing the institution’s activities, for determining its future
direction, and fostering an environment in which the institution’s mission is
achieved.
Governing bodies and senior management are the primary stakeholders served
by assurance functions and risk management models and we believe that they
are therefore the parties best positioned to provide oversight and help ensure
that effective processes are reflected in the organisation’s risk and control
processes.
Do you agree that the included requirements relating to governance are
those that are necessary for the proper organisation and management of
financial affairs?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
If you don’t agree, please provide reasons/comments. (Please refer to specific
examples or references if possible.)
1
Part 4 S(27)(1)
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Circular W16/21HE: Annex A
5. Borrowing permission
The 2015 Act states under S27 (2) (a) that the Code may make provision about
“circumstances in which a regulated institution is to enter into a transaction of a
class specified in the Code only with the consent of HEFCW.”
We have included within the Code the requirement that institutions obtain
written approval from HEFCW before entering into financial commitments, when
those commitments are over a certain threshold.
Information on the threshold’s method of calculation is outlined at Annex B in
the Code.
We know from discussions with, and publications by, financial lenders and
credit agencies that the regulatory framework currently operated by HEFCW
under its 92 Act powers (which includes borrowing thresholds) helps to
contribute positively towards lenders assurance2. Furthermore, bank covenants
often include a requirement for funding council approval.
For those HEIs that are currently subject to HEFCW’s Memorandum of
Assurance and Accountability, this requirement is similar to the existing
borrowing requirements and the MAA requirements will be revised in order to
ensure that they do not conflict with the Code. We therefore consider it should
not be any additional burden for HEIs under the existing MAA to meet this
requirement.
The adherence to borrowing thresholds may be new to other organisations,
however, will only be relevant where the institution proposes to enter into
significant new financial commitments.
We have not yet determined the threshold to be applied; we are awaiting more
data from the next set of financial forecasts to be submitted to us July 2016
(under the new FEHE Statement of Recommended Practice) before doing so.
We will, however, aim to set the threshold to be commensurate with the current
threshold defined in our Memorandum of Assurance and Accountability, of 5x
EBITDA insofar as we are able. We welcome your views on this approach.
The MAA was consulted on in Summer 2015; the responses to that consultation
indicated that, where possible, there was support for maintaining parity with the
English Higher Education sector in respect of borrowing threshold requirements.
We would like to know whether:
2
For example, Moodys https://www.moodys.com/research/Moodys-assigns-Aa2-rating-to-CardiffUniversity-outlook-stable-PR_342318?WT.mc_id=AM~RmluYW56ZW4ubmV0X1JTQl9SYXRpbmdzX05ld3NfTm9fVHJhbnNs
YXRpb25z~20160125_PR_342318
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Circular W16/21HE: Annex A
a)
You consider the proposed approach of setting the threshold to be
commensurate with 5x EBITDA to be appropriate, once more data is obtained;
and
b)
Whether you are content that we consider maintaining a similar
borrowing threshold with England, provided that that threshold is acceptable to
us?
We do not consider that this requirement infringes upon the autonomy of
institutions and therefore on the classification of those providers currently
defined as ‘Non-Profit Institutions Serving Households’. It is ultimately the sole
responsibility of the Governing Body to ensure that increases in financial
commitments don’t compromise future sustainability of the institution.
Do you agree that the proposed approach of setting the threshold to be
commensurate with 5x EBITDA (once more data is obtained) is
appropriate?
Strongly
agree
☐
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
Do you agree that we should consider maintaining parity with the
borrowing threshold in England, provided that the threshold is acceptable
to us?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
6. Acting in the student interest
We believe that the protection of the student interest lies at the heart of the
Higher Education (Wales) Act 2015. It is in the interests of all stakeholders to
provide, and to be seen to provide, a stable regulatory environment for
students. The regulatory environment in England requires the Higher Education
Funding Council for England (via the Operating Framework) to have an
objective to protect the student interest.
We consider that this responsibility is conferred upon HEFCW via the Higher
Education (Wales) Act 2015 and that the protection of the student interest
should be a key consideration in considering the organisation and management
of financial affairs within an institution.
Do you agree that HEFCW has a responsibility to act in the student
interest in respect of financial requirements?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
7. Audit Code of Practice
The 2015 Act states that the Code may make provision about the accounting
and audit arrangements of regulated institutions3.
The Audit Code of Practice section of the Code is similar to the Audit Code of
Practice within HEFCW’s current Memorandum of Assurance and
Accountability.
Do you agree that the Audit Code of Practice is fit for purpose?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any suggestions for areas to modify or improve, or any other
comments? If so, enter them here. (Please refer to specific examples or
references if possible.)
3
Part 4 S(27) (2)(b)
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Circular W16/21HE: Annex A
8. Exercise of discretion in invoking the Statement of Intervention
The Code splits its provisions into two sets:
1. ‘must’ requirements which are specific legal requirements or requirements
under the Code and which must be complied with; and
2. ‘should’ provisions which are not requirements, but which we consider to be
good practice.
A failure to comply with a ‘must’ requirement would ordinarily result in HEFCW
instigating the processes within the Statement of Intervention.
However, we recognise that there are circumstances where the ‘must’
provisions may fail to be met and where HEFCW considers that the effects of
the failure, or likely failure, are not severe or that the institution’s proposed
actions to remedy the failure are acceptable. In such cases, it may not be
proportional to instigate the Statement of Intervention.
To this end, we have included a provision that HEFCW may exercise discretion
in instigating the Statement of Intervention.
Do you agree that HEFCW should exercise discretion in respect of
breaches of the Code, rather than automatically invoking the Statement of
Intervention?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
9. Link between risk and our Statement of Intervention functions
The 2015 Act states that HEFCW must form a view as to whether an institution
has, or is likely to fail to meet the requirements of the Code. As outlined within
the Code, we therefore have assurance processes to inform our view of the
‘likeliness’ of such a failure occurring. The Code outlines our proposal to
undertake risk assessment, to inform this view.
When HEFCW assesses an institution to be at ‘high risk’, HEFCW will engage
with the institution in accordance with HEFCW’s Statement of Intervention. This
forms the formal mechanism for instigating the processes within the Statement
of Intervention.
In so doing, we have tried to keep the relationship between the Code and the
Statement of Intervention clear and simple.
We define high risk as:
The institution has failed, or is likely to fail, to comply with a requirement
imposed by the Code and the effect of this is to give rise to financial viability
concerns over the short to medium term.
There are clearly circumstances in which we may need to intervene in
accordance with our Statement of Intervention, but where the viability of the
institution is not in question. For instance, repeated compliance failures by an
institution, which in themselves are minor in impact, but which represent a
continuing failure to engage in correct processes and imply a lack of appropriate
control over the organisation and management of financial affairs. In these
circumstances, repeated failure may also risk an institution’s fee plan being
refused, which in itself becomes a viability concern.
Do you agree that the linkage between the risk assessment process and
the Statement of Intervention is clear and appropriate?
Strongly
agree
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
☐
Do you have any comments? If so, enter them here. (Please refer to specific
examples or references if possible.)
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Circular W16/21HE: Annex A
10. Regulatory requirements and good practice
Do you agree that the Code strikes an appropriate balance between ‘must’
and ‘should’ provisions?
Strongly
agree
☐
Agree
Neither
agree nor
disagree
Disagree
Strongly
disagree
Don’t
know
☐
☐
☐
☐
☐
If you don't agree, which provisions do you consider need modification (if not
outlined in other answers) and why do you believe such modification(s) would
allow for a more appropriate regulatory environment?
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Circular W16/21HE: Annex A
11. Other matters
Do you have any other comments?
Please enter any other comments you have.
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Circular W16/21HE: Annex A
Summary of consultation questions
Question 1:
Do you agree that the code strikes an appropriate balance between
institutional autonomy and regulation?
Question 2:
Do you agree that the definition of financial viability should be
consistent with 'going concern' over the short to medium term?
Question 3:
Do you agree that the governing body should appoint an officer to
be accountable to HEFCW for compliance with the terms of the
Code?
Question 4:
Do you agree that the included requirements relating to governance
are those that are necessary for the proper organisation and
management of financial affairs?
Question 5a:
Do you agree that the proposed approach of setting the threshold to
be commensurate with 5x EBITDA (once more data is obtained) is
appropriate?
Question 5b: Do you agree that we should consider maintaining parity with the
borrowing threshold in England, provided that the threshold is
acceptable to us?
Question 6:
Do you agree that HEFCW has a responsibility to act in the student
interest in respect of financial requirements?
Question 7:
Do you agree that the Audit Code of Practice is fit for purpose?
Question 8:
Do you agree that HEFCW should exercise discretion in respect of
breaches of the Code, rather than automatically invoking the
Statement of Intervention?
Question 9:
Do you agree that the linkage between the risk assessment process
and the Statement of Intervention is clear and appropriate?
Question 10:
Do you agree that the Code strikes an appropriate balance between
‘must’ and ‘should’ provisions?
Question 11:
Do you have any other comments?
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