HEFCE's approach to working as principal regulator

Principles of good regulation

In our role as principal regulator we will follow the five principles of good regulation: proportionality, accountability, consistency, transparency and targeting. We will therefore act:

• reasonably
• rationally
• proportionately
• fairly
• in accordance with public law.

HEFCE as funder and principal regulator

All principal regulators have dual responsibilities as funder and principal regulator. Parliament considered the risk of conflict of interest but concluded it was lower than that of over-regulation. We agree, believing that we can accommodate both roles in our work with little risk of a significant conflict.

Most of our dealings with HEIs will be in our role as funder. We will try to make it clear when we are dealing with an HEI as principal regulator, or when we need to engage with an HEI in both roles.

Our combined role will apply in the following circumstances:

• cyclical monitoring of HEIs as charities (which will be incorporated into our existing accountability processes)
• financial loss or fraud (where both public funding and charitable assets are involved).

It is also possible that something we are dealing with as, say, the funding body leads to an issue we need to consider as principal regulator.

Sector impact assessment

In developing our role as charity regulator for HEIs, we have undertaken a formal assessment of the impact it is likely to have on the HE sector in terms of regulatory burden, equality and diversity, and sustainable development.

Information requirements

Following consultation in early 2011, we have introduced new rules intended to ensure clear disclosure by HEIs of information about their charitable status and achievements.

To ensure consistency in the provision of information, we require all exempt charity HEIs to maintain a 'gateway page' on their web-sites. This page contains easily accessible information similar to the information about registered charities that is available on the Charity Commission's web-site.

We now also require HEIs to provide more information in their financial statements – particularly about their trustees and about how each HEI has provided public benefit. An HEI's financial statements are part of the information available on its web-site.

Our latest financial memorandum with the institutions we fund sets out the detail of these new reporting requirements. Our good practice guidance provides supplementary information.

Periodic monitoring of exempt charity HEIs' compliance with charity law

We have adapted both our annual accountability review (AAR) and the five-yearly HEFCE accountability review (HAR) processes to enable us to monitor compliance issues.

As the main funder of HEIs, during each AAR we review HEIs' financial performance as shown in their annual financial statements. As principal regulator we now also review whether HEIs have adequately reported information about themselves as exempt charities.

We also check that each institution has a 'gateway' page on its own web-site that is updated by 31 January every year. These gateway pages ensure that information about their governance and financial performance as charities is available to the public.

In the HAR we discuss with senior officials and trustees their awareness of charity law compliance and good practice, and their sources of assurance about this.

Investigating concerns about HEIs' compliance with charity law

There are occasions when we need to investigate concerns about an HEI's compliance with charity law. This may be something we have identified through our own monitoring or something brought to our attention by someone else, including an HEI itself or its external auditors.

Unless the matter is first raised with us by the HEI, we normally write to the accountable officer of the HEI setting out the concern and inviting a response. In all cases, our further actions will depend both on the nature of that response and on the seriousness of the issue. We would hope to be able to resolve the matter through correspondence but may need to arrange for audit or other independent review. It is possible that we will share information with the Charity Commission to ensure that our conclusion is consistent with any similar cases that they have dealt with. We handle the investigation according to our public interest disclosure policy which has been updated to include our work as principal regulator.

In particularly serious cases, we may need to ask the Commission to assist us in the investigation. The Commission has published guidance about its regulatory approach.

In essence, the Commission seeks to agree actions with the charity concerned. If that is not possible, the Commission might decide to open a formal inquiry using its powers under section 46 of the Charities Act 2011. In turn, this might lead to the use of its other powers. The Commission has published guidance on its approach to statutory inquiries.

Advising HEIs or their professional advisers

We have not received additional income to support our work as principal regulator and have limited technical expertise in charity law. But we see it as a proper part of our duty to promote compliance with charity law to try to assist HEIs and their professional advisers.

This section of our web-site includes good practice guidance that we think will be of particular relevance to HEIs and/or their professional advisers. We also use the mail-group charityreg-hefce to update the sector on new issues.

HEIs and their advisers may also contact Andrew Malin, tel 0117 931 7332, or e-mail charityreg@hefce.ac.uk.

Developing regulatory policy and practice

As well as adapting our own processes in the light of experience, we will work with the Charity Commission and other UK charity regulators to develop policy and practice.

If HEIs or their advisers have comments on HEFCE's processes or suggestions to improve charity regulation generally, please contact us as described above.

Further information

• The Commission's regulatory approach
• The Commission's guidance on its approach to statutory inquiries
• HEFCE's financial memorandum with HEIs
• Accounts Direction to HEIs