Financial pressures and financial sustainability

We take a risk-based approach to monitoring a provider's financial performance.

Our financial viability and sustainability risk assessment framework sets out how we assess and categorise financial risk, including the indicators we use and what providers can expect from us at each level.

We place providers into one of five risk categories, reflecting the severity and proximity of financial risk, from ‘no financial concerns’ to ‘acute financial concerns’ or ‘actual market exit’.

As financial risk increases, particularly where students may be affected, we increase our regulatory oversight.

Where we identify that a provider is experiencing financial difficulties, we work with it to understand and assess the extent of the issues.

Our response is proportionate and may include more frequent monitoring, requests for additional information or recovery plans, and closer engagement with providers.

Monitoring and intervention

1. Triage

Providers must submit financial returns (annual and interim), including forecasts, audited financial statements, and a commentary on their financial performance and resilience.

We undertake a triage process to identify individual providers that need more detailed financial assessment. This involves considering a provider's financial performance, position and forecast information, supplied to us in the provider’s annual financial return.

We also consider any intelligence to suggest increased risk such reportable events or notifications submitted to us.

2. Detailed assessment

We consider the annual and interim financial data returns, together with any reported issues or event, to build a rounded picture of a provider’s financial situation.

If a provider has been identified for further assessment, we look at their financial performance, position and contextual information in more detail.

We analyse the provider’s plans, forecasts and the degree of uncertainty and risk relating to its future position. We overlay the risks facing the sector, and how they apply to a particular provider.

Our financial viability and sustainability risk assessment framework makes clear our approach to categorising financial risk.

Our assessment of financial risk determines whether we need to engage with a provider.

3. Risk categories

As part of our assessment of financial risk, providers are placed into one of five risk categories. These are described in detail the risk framework, but in summary the categories are:

• Category 1 – No financial concerns
• Category 2 – Possible financial concerns
• Category 3 – Actual financial concerns
• Category 4 – Acute financial concerns
• Category 5 – Actual market exit.

4. Engagement and monitoring

Where we identify financial challenges, we will increase our engagement with providers. This usually involves a phone call or meeting to understand a provider's individual context in more detail. 

We may then require a provider to submit more financial information to better understand the type and extent of its financial issues. 

We also work with external financial consultants to provide additional capacity and a range of expertise to support our monitoring where a provider's financial context is particularly complex.

When we judge a provider to be at increased financial risk (category 3 and 4 - actual or acute financial concerns) they will be subject to enhanced monitoring and increased engagement.

We will contact the head of the provider (accountable officer) and the head or chair of its governing body to explain our assessment and the implications for further regulatory action.

When a provider is placed in risk category 4 (acute financial concerns), we will usually carry out a formal assessment of material risk of market exit. We will notify the provider of this when confirming its category 4 status. Where we conclude that there is a material risk of market exit, we will typically issue a student protection direction.

As part of its planning a provider should take seriously the need to mitigate the risks it is facing and consider planning for scenarios in which institutional closure is a credible outcome.

We may also explore with providers what options are being considered that could be pursued to ensure they are financially viable and sustainable in the long term.

We may share information with other government departments and relevant bodies where this supports effective coordination and minimises burden. We will normally inform providers before sharing information about them to other organisations.

4. Student protection directions

Where there is a risk that a registered provider may be unable to continue to provide higher education, we can require a provider to put a market exit plan in place to protect student interests.

This should include considering and planning for how students can continue their studies, if they choose to, with minimal disruption.

5. Institutional closure

When it appears that there is a material risk that a university or college could be unsustainable (category 5 - market exit), we can require the provider to deploy the student protection measures it has developed.

We may also engage with a range of other organisations, such as the Department for Education, Student Loans Company, Office of the Independent Adjudicator for Higher Education, insolvency practitioners and the provider’s validators to deliver the best possible outcomes for students.