The principles institutions must apply are:
- The risks and affordability of any new on- and off-balance sheet financial commitments must be properly considered.
- Financial commitments must be consistent with the HEI’s strategic plan, financial strategy and treasury management policy.
- The source of any repayment of a financial commitment must be clearly identified and agreed by the governing body at the point of entering that commitment.
- Planned financial commitments must represent value for money.
- The risk of triggering immediate default through failure to meet a condition of a financial commitment should be monitored and actively managed.
The primary responsibility for assessing the affordability of, and risks around, financial commitments rests with HEIs’ governing bodies.
HEFCE’s role is to assess whether any financial commitments entered into by an HEI present challenges to the HEI’s sustainability that could impact adversely on the past and continuing public investment in an HEI, become a call on public funds, or adversely affect the collective student interest.
An institution must get written permission from us to increase its financial commitment threshold.
Annex C of the MAA sets out how the financial commitments threshold is calculated, as well as the information we need to assess requests to increase the threshold.
When we designate an institution as ‘at higher risk’ any increase in its financial commitments (regardless of the threshold) will require written permission in advance.
The adoption of Financial Reporting Standard 102 for 2015-16 has implications for the financial committment threshold. Our approach to this transition is outlined in our circular letter 12/2016.
The threshold is not a limit, and should not deter an institution from increasing its financial commitments where appropriate. An institution should determine the level of its financial commitments that are both affordable and consistent with its financial strategy.
In any case presented to us we ask the institution to demonstrate this, to show that the proposal represents good value, and to confirm the approval of its governing body.
In responding to requests for consent we aim to be helpful and pragmatic, taking into account the circumstances of each proposal.