The Limits of Regulation

When regulators or other decision-makers exercise their public functions they must, as a matter of law, only do so within the limits of their powers.

For example, the Court of Appeal held in March 2019 that the Prevent duty guidance for higher education was in breach of public law. The Government had issued this guidance in the exercise of powers granted by the Counter Terrorism and Security Act 2015. In this case, the court reached the conclusion that parts of the guidance did not give a proper balance to the competing duties placed on relevant higher education bodies (1).

Some higher education bodies are registered charities (including the colleges of Oxford and Cambridge and many students’ unions). These bodies are under the direct regulatory jurisdiction of the Charity Commission for their compliance with charity law. Registered charities are required to report “serious incidents” to the Charity Commission.

The Charity Commission defines a ‘serious incident’ as:

“an adverse event, whether actual or alleged, which results in or risks significant:

• harm to your charity’s beneficiaries, staff, volunteers or others who come into contact with your charity through its work
• loss of your charity’s money or assets
• damage to your charity’s property
• harm to your charity’s work or reputation” (2)

The Office for Students (OfS) took up its full suite of statutory powers under the Higher Education and Research Act 2017 (HERA 2017) on 1 August 2019. The OfS is also the Principal Regulator for those ‘exempt charities’ which are on the public register of English higher education providers.

The OfS published its Regulatory Framework for higher education in England in February 2018 and presented this to Parliament pursuant to section 75 HERA 2017. The OfS Regulatory Framework introduced the concept of ‘reportable events’. Condition F3 requires registered English higher education providers to provide information to the OfS and paragraph 494 of the Regulatory Framework defines reportable events as follows:

A reportable event is any event or circumstance that, in the judgement of the OfS, materially affects or could materially affect the provider’s legal form or business model, and/or its willingness or ability to comply with its conditions of registration.

There appear to be two limbs to this definition – any event or circumstance that materially affects or could materially affect:

• the provider’s legal form or business model; and/or
• its willingness or ability to comply with its conditions of registration.

Paragraph 494 goes on to state that “Reportable events…include, but are not limited to” various specified events.

The OfS published guidance on reportable events on 15 October 2019: Regulatory Advice 16 (“RA16”).  Whilst RA16 repeats the definition of a reportable event as set out in the Regulatory Framework, RA16 goes on to say that:

Paragraph 494 of the regulatory framework also sets out types of events that must always be reported to the OfS under condition F3(i). (RA16, paragraph 9)

RA16 appears to suggest that the OfS considers the events listed in paragraph 494 of the Regulatory Framework are always “material”, irrespective of their relevance, significance or monetary value. Some of the listed events include a materiality requirement, but some do not including the following:

• 494(e) “A provider becoming aware of legal or court action“.
  494(g) “Regulatory investigation and/or sanction by other regulators e.g. Charity Commission, Home Office“

In thinking about the limits of the regulatory powers of the OfS, we note that registered providers of higher education are independent, autonomous bodies with their own governance structures and duties. Section 2 of HERA 2017 provides that:

“In performing its functions, the OfS must have regard to-

a) the need to protect the institutional autonomy of English higher education providers…

g) so far as relevant, the principles of best regulatory practice, including the principles that regulatory activities should be-

i) transparent, accountable, proportionate and consistent, and

ii) targeted only at cases in which action is needed.”

Many regulators – including the OfS – are also subject to ‘The Regulators’ Code’ published under the Legislative and Regulatory Reform Act 2006 (3). The Regulators’ Code requires that regulators “must have regard to the Code when developing policies and operational procedures that guide their regulatory activities. Regulators must equally have regard to the Code when setting standards or giving guidance which will guide the regulatory activities of other regulators.”

The Regulators’ Code includes various principles, including the requirement that regulators

• should carry out their activities in a way that supports those they regulate to comply and grow (principle 1)
• should ensure clear information, guidance and advice is available to help those they regulate meet their responsibilities to comply (principle 5)

In our view, the OfS should review RA16. In particular, we would suggest that RA16 should:

• confirm that the ‘materiality’ requirement extends to all specified reportable events; and
• provide greater clarity and certainty about the scope of the specified reportable events.

(Note to readers: AHUA, UUK and the Russell Group wrote to the OfS in December suggesting ways in which the guidance could be improved and offered to meet OfS staff to assist with drafting the revised guidance).

References:

(1) R (on the application of Salman Butt) –v- Secretary of State for Home Department [2019] EWCA Civ. 256, Court of Appeal

(2) Charity Commission guidance for charity trustees about serious incidents how to spot them and how to report, published 2 June 2014, updated 14 June 2019

(3) The Regulators’ Code, Department for Business Innovation and Skills, April 2014

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