Institutions should expect to be challenged if they lack “credible plans” to manage financial risks, according to the English sector regulator as it published its new five-year strategy that says such issues are “unlikely to abate in the short term”.

Signalling a more hands-on approach to financial resilience, the Office for Students (OfS) said it will be monitoring and communicating “the impact of financial pressures on student choice, as institutions make difficult decisions about the size and shape of their provision” in the years ahead. 

This will include the identification of “potential risks to the supply of critical skills at a regional and national level,” according to strategy documents published by the regulator on 13 November.

The OfS’ updated strategy, which covers the period of 2025 to 2030, seeks to address criticism that it has been too distant from the providers it regulates and has been too quick to bow to the political priorities of its ministerial overseers, to the detriment of the students it was set up to protect.

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The regulator was also previously criticised for being too slow to react as a financial crisis gripped the sector, eventually having to divert its resources from other functions so it could get to grips with the challenges facing institutions.

A focus on finances is therefore placed front and centre of the new strategy, with the OfS promising to improve its data collection methods to ensure it has an up-to-date picture of risks faced by the sector and individual institutions.

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“We will communicate our conclusions as appropriate, helping institutions to understand their own position while also supporting a shared view of the sector’s financial health and other aspects of performance,” the strategy says.

“We will challenge institutions where we have concerns that they may not have credible plans in place to manage the financial risks they face.”

Institutions facing financial challenges “may need to consider major changes to their operating models to prevent financial risks from crystalising”, it adds, with the decline in the real-terms value of income and increased reliance on international student fees creating “complex challenges for institutions to navigate that are unlikely to abate in the short term”.

The OfS also wants to “normalise” conversation around preparedness for institutional closures and “will continue to work with government to address the gaps in the system that mean that students cannot be adequately protected if their institution can no longer operate”.

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A renewed focus on “good governance” also forms part of the strategy, with institutions that “fail to strengthen their governance sufficiently” facing regulatory action.

Those that run courses subcontracted to franchised providers will also face increased regulatory requirements and the OfS says it will “consider further changes should other forms of high-risk activity emerge”.

Overall, the strategy signals an intention to reset the regulator’s relationship with the sector. It says the OfS wants to “deliver our work in collaboration with students and the institutions we regulate”.

While “accepting there will be issues on which we disagree, we will cultivate relationships based on mutual respect, confidence and trust”, it adds.

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Edward Peck, the new chair of the OfS, said delivering the strategy “will be as much about how we regulate as what we regulate”, adding that the plans outlined will “drive our stewardship of this important sector in a period of change as we work to become an exemplary regulator”.

tom.williams@timeshighereducation.com