Where schools offer repayment plans to help parents manage the payment of school fees, they may require Financial Conduct Authority (“FCA”) authorisation. Although there are some exemptions to FCA authorisation, not all schools will fall within the exemptions or be aware that this requirement applies to them. The consequences of carrying out a consumer credit activity without FCA authorisation can be serious – including criminal sanctions. What sort of activities might need FCA authorisation in the context of schools? The two main scenarios where schools may need FCA authorisation are: 1. where the yearly or term fee is due at the outset of the year or term and the school allows for one of the following options: • the payment to be split into more than 12 instalments; or • instalments to be paid over more than 12 months; or • interest or charges are applied to the tuition fee. In this issue: Consumer credit – does your school need to be regulated? – Page 1 The Energy Saving Opportunity Scheme What you need to know – Page 3 Lessons from recent Charity Commission inquiries – Page 5 Legal briefs – Page 6 Bond Dickinson contacts – Page 7 Consumer credit – does your school need to be regulated? Independent Schools Newsletter Summer term 2015 Independent Schools Newsletter Summer Term 2015 2. where the parent falls into default in paying tuition fees and the school enters into any agreement with the parent which allows the parent to pay the overdue amount: • in more than 12 instalments; or • in instalments that run over more than 12 months; or • interest or charges are applied to the overdue fee. Up until 17 March 2015, if the credit agreement allowed for payments to be split into more than 4 instalments schools would have needed to obtain FCA authorisation. It is only since 18 March 2015 that credit agreements of up to 12 instalments, paid over 12 months and without interest or charges, have been brought under the category of exempt agreements. What are the risks of continuing without FCA authorisation? A person who carries out regulated consumer credit activities without FCA authorisation is liable to imprisonment, a fine or both. Schools may also find themselves unable to enforce, without a court order, the agreements they have entered into with parents for the payment of their fees. The same consequences apply where the agreements themselves do not follow the prescribed format as required under the Consumer Credit Act 1974. Some schools who previously held a consumer credit licence with the Office of Fair Trading (“OFT”) may currently hold an “interim permission” with the FCA (if they applied for this before 31 March 2013). These schools need to ensure that they apply for the relevant authorisation within the time slot allocated to them by the FCA or risk having their “interim permission” lapse. How to apply for FCA authorisation? There are two different categories of permission for consumer credit activities under which schools may fall. A school that requires “full” permission will be subject to a more complex authorisation process, as well as be subject to more burdensome ongoing regulatory obligations. Conversely, schools that can benefit from the “limited” permission regime will have a simpler, more straight-forward authorisation process and be subject to a less burdensome ongoing supervision regime. Schools must carefully consider the extent of their credit activities in order to determine whether FCA authorisation is required and whether they are subject to the “limited” or “full” permission regime and seek legal advice where appropriate. Schools should also consider whether their credit agreements are suitably drafted in light of the requirements of the Consumer Credit Act 1974 to ensure those agreements can be properly enforced. If you would like further advice or guidance on this, please do get in touch. 2 A person who carries out regulated consumer credit activities without FCA authorisation is liable to imprisonment, a fine or both. Schools may also find themselves unable to enforce, without a court order, the agreements they have entered into with parents for the payment of their fees. Independent Schools Newsletter Summer Term 2015 Independent schools that, on 31 December 2014, had 250+employees or an annual turnover exceeding €50m (£38,937,777) with a balance sheet exceeding €43m (£33,486,489) are required to participate in ESOS, which is UK-wide. This means that for the initial ESOS compliance period (17 July 2014 – 5 December 2015) they must: • measure total energy consumption from assets or activities in the UK for a continuous 12 month period, which can run from and to any date provided that the period overlaps with the qualification date of 31 December 2014. • ensure that an energy audit covering all areas of energy consumption is undertaken by a person who meets the standards defined for a Lead Assessor. • ensure that audits analyse energy consumption and energy efficiency, identify any way in which energy efficiency may be improved, recommend any such measures that are reasonably practicable and cost effective and identify the estimated costs and benefit of any energy saving opportunity. • compile an evidence pack containing the relevant data and information and keep this for at least two subsequent compliance periods. • appoint one or more responsible officers who must be a director of the participant or, where no person falls within that description, a person exercising management control. Where the Lead Assessor is independent of the company only one responsible officer must be nominated. Otherwise, two responsible officers must be nominated. • ensure that no later than 5 December 2015, the responsible officer(s) provide notification to the Environment Agency using the ESOS Notification System as to whether the requirements of the Regulations have been met and whether they have seen and considered the recommendations of the energy report. Participants are not required to disclose the content of their energy audits or to adopt any energy efficiency recommendations. Where a participant fails to comply with the Regulations the regulators may exercise powers of inspection and/or serve a compliance notice, enforcement notice and/or penalty notice. Penalties are civil rather than criminal and, depending on the nature of the breach, range between a maximum of £5,000 and £50,000 with subsequent daily penalties for a maximum of 80 days. Penalties can also be imposed for failure to comply with a notice issued by a compliance body. For more detail please see our ESOS Briefing: ESOS Briefing 3 Greater director level accountability and regulatory focus on energy consumption and resource efficiency has been steadily increasing over recent years. The Energy Savings Opportunity Scheme (“ESOS”) Regulations 2014, which came into force on 17 July 2014, place responsibilities for energy awareness firmly at board level and are intended to help deliver part of the UK’s required 20% improvement in energy efficiency as against a 1990 baseline by 2020. The most recent guidance on ESOS was issued by the Environment Agency on 16 February 2015. The Energy Saving Opportunity Scheme – What you need to know Where a participant fails to comply with the Regulations the regulators may exercise powers of inspection and/or serve a compliance notice, enforcement notice and/or penalty notice. Independent Schools Newsletter Summer Term 2015 Safeguarding The Schools of King Edward VI, Birmingham (“the Charity”) operate two independent schools, five grammar schools and one academy. In August 2013, the Charity reported a serious incident to the Charity Commission as a member of staff at one of the independent schools was under police investigation for offences relating to child pornography and the member of staff pleaded guilty to several offences. Separately and unrelated to these offences, the Department for Education had informed the Commission that the school had been instructed to prepare an Action Plan to address its failure to meet statutory education and safeguarding and welfare standards. What the school did to rectify the situation • On discovering the problem, the school discussed the issue with pupils. It amended its Personal, Social and Health Education (PSHE) curriculum to remind pupils of what the school viewed as inappropriate and to encourage pupils to report inappropriate behaviour. • The Charity itself had established a sub-committee specifically for the purpose of looking at risk and compliance, and tasked the sub-committee with monitoring child protection across the charity and all of its schools. • Policies had been drawn up to ensure that no teacher was left alone with children, especially on school trips, and that all doors in the school had glass panels. • The Charity was tightening up and consolidating its safeguarding policies surrounding employee CRB/DBS checks to ensure that there was no risk that an employee would slip through the net by moving employment from one school to another within the Charity. Salaries and expenses Gads Hill School is an independent school in Kent. It submitted a serious incident report to the Charity Commission in February 2013 to advise that the Head Teacher’s salary had not been properly reviewed for some time and that the increases to the salary over the last few years had been excessive and not in line with the role. Although the Commission was initially satisfied with the action the school took, local press coverage about the pay awards and allegations of excessive expenses claims led the Commission to investigate further by opening an operational compliance case. 4 Two recent operational compliance reports from the Charity Commission raised important governance issues which may serve as a useful reminder for independent school governors. Lessons from recent Charity Commission inquiries Independent Schools Newsletter Summer Term 2015 Issues highlighted • Proper annual salary reviews had not taken place, the Head Teacher had just proposed salary increases in the school’s budget each year which was agreed by the governors without robust challenge. • The governors had relied too heavily on the Finance Committee in deciding to agree to the budget. • There had been no benchmarking to determine what an appropriate salary for the Head Teacher was. • There was no written policy in place about salary increases. • The school’s original serious incident report to the Charity Commission had not raised concerns around personal expenses claims, only inappropriate salary increases. 5 Serious Incident Report Governors need to report any serious incident that results in, or risks, significant: • Loss of the charity’s money or assets; • Damage to the charity’s property; or • Harm to the charity’s work, beneficiaries or reputation. The cases outlined above highlight the Commission’s view that anything that may affect an independent school’s reputation adversely would fall within the definition of a “serious incident”. Governors should report serious incidents by emailing the Commission as soon as they are aware of the incident. They should say what has happened and how they are dealing with the incident, even if it has already been reported to the police or another regulator. It is better for Governors to approach the Commission with “clean hands” and confirm that they have/are taking steps to remedy the situation, and have acted reasonably and honestly, meaning that they are less likely to face allegations of breach of trust. What the school did to rectify the situation In response, the governors set up a Salary Review Board and policies for expenses claims were drawn up to increase transparency. The Head Teacher’s salary was reduced to a level comparable to other schools. Going forward, the governors agreed that they would take legal advice about the overpayment of the Head Teacher’s salary during annual reviews, and that their decisions would be documented properly. There had been no benchmarking to determine what an appropriate salary for the Head Teacher was. • On 20 March 2015, the Law Commission opened a consultation inviting comment on 40 proposed changes to charity law which included proposals to allow more flexible use of permanent endowments. The proposals ask whether charities should be given greater flexibility to spend permanent endowment under the current regime by, amongst other things, raising the thresholds at which trustees can pass a resolution to spend permanent endowment without the need to obtain a scheme from the Charity Commission. The Law Legal briefs Commission also suggested an entirely new permanent endowment regime which charities would have the ability to opt into. This new proposed regime would not place restrictions on charities spending capital provided that a duty was placed on trustees to seek to ensure that the “real value” (as opposed to the actual cash value) of the capital fund is maintained over the long term, therefore balancing the interests of current and future beneficiaries. The consultation will run until 3 July 2015 with proposals to introduce a Bill to parliament in 2016. 6 Independent Schools Newsletter Summer Term 2015 • The Chancellor’s March budget confirmed the development of a new Charity Authorised Investment Fund (“CAIF”). It is intended that CAIF will replicate the main benefits provided by the current Common Investment Fund structure including the tax benefits associated with being a registered charity; the ability to smooth income to aid cash flow budgeting for investing charities; and the appointment of an independent advisory committee to represent charity unitholders. Existing Common Investment Funds may choose to convert to the new structure when it comes into being with the main advantages expected to be improved regulatory oversight, as CAIF will be regulated by the Financial Conduct Authority rather than the Charity Commission, and exemption from VAT on investment management fees. Tracy Walsh Partner, Pensions T: +44 (0) 191 279 9946 E: tracy.walsh @bonddickinson.com Key contacts: Emma Moody Head of Charities and Independent Schools T: +44 (0) 191 230 8823 E: emma.moody @bonddickinson.com Alexandra Casley Managing Associate, Charities and Independent Schools T: +44 (0) 117 989 6565 E: alexandra.casley @bonddickinson.com Samantha Pritchard Associate, Charities and Independent Schools T: +44 (0) 191 230 8391 E: samantha.pritchard @bonddickinson.com Mark Honeywell Solicitor, Charities and Independent Schools T: +44 (0) 113 290 4461 E: mark.honeywell @bonddickinson.com Claire-Jane Nicol Partner, Employment T: +44 (0) 191 279 9752 E: claire-jane.nicol @bonddickinson.com Sarah Holmes Legal Director, Regulatory and Environment T: +44 (0) 1752 67 7703 E: sarah.holmes @bonddickinson.com Simone Taylor Associate, Banking and Finance T: +44 (0) 207 788 2355 E: simone.taylor @bonddickinson.com 7 Independent Schools Newsletter Summer Term 2015 www.bonddickinson.com This communication is produced for general information only and does not constitute legal or other professional advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.