House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Education and Training, Senator the Honourable Simon Birmingham)

Schedule 2 - Amendments relating to the Tertiary Education Quality and Standards Agency

Summary

Reforms to the VFH scheme and the recent passage of the VSL Act have led to a rise in interest from VET providers seeking to transition their operations into the higher education sector. To be agile and responsive to convergent activities in the higher education sector there is a need to ensure that the TEQSA Act provides appropriately stringent controls to protect students from potentially unscrupulous provider actions.

It is critical to implement measures to ensure an appropriately high standard is in place to assess applications by those seeking to enter the higher education sector, which is Australia's largest service export worth $21.8 billion in 2016. These amendments improve student protection mechanisms by ensuring greater scrutiny of providers in the registration process and during a registration period. This is consistent with the VSL arrangements legislated in 2016. The amendments will also:

•

enable TEQSA to take into account the history of related entities, as well as the history of a provider's delivery of education services

•

introduce a requirement that all registered higher education providers, and key personnel for those providers, must be fit and proper persons

•

amend the definition of 'qualified auditor' to ensure that auditors of a higher education provider's financial statements must be a 'registered auditor' for the purposes of the Corporations Act or otherwise be approved by TEQSA

•

clarify that TEQSA may delegate its functions or powers to the Chief Executive Officer

•

clarify the definition of 'vocational training and education course' to make clear that courses which lead to the awards of Diplomas, Advanced Diplomas, Graduate Diplomas and Graduate Certificates are required to be accredited under the TEQSA Act or under vocational education laws.

Consistent with the VSL arrangements legislated in 2016, the proposed amendments to the TEQSA Act will better equip TEQSA to implement robust student protection mechanisms.

Detailed explanation

Part 1 - Amendments

Tertiary Education Quality and Standards Agency Act 2011

Item 1 - Section 5

This item provides that the term 'fit and proper person', when used in the TEQSA Act, has a meaning affected by new section 7A (item 4).

7A Fit and proper person

(1) In determining whether a person is a fit and proper person for the purposes of this Act, regard may be had to the matters (if any) specified in an instrument under subsection (2).

(2) TEQSA may, by legislative instrument, make a determination specifying matters for the purposes of subsection (1).

(3) TEQSA must not make an instrument under subsection (2) unless the Minister has given written approval to the making of the instrument.

(4) TEQSA must give the Minister such information as the Minister reasonably requires for the purposes of making a decision under subsection (3).

Item 2 - Section 5 (paragraphs (a) to (c) of the definition of qualified auditor)

To strengthen the financial reporting requirements under the TEQSA Act, this item repeals and substitutes the definition of 'qualified auditor' in section 5. Under the new definition, a qualified auditor means a registered company auditor (within the meaning of the Corporations Act or a person otherwise approved by TEQSA under subsection 27(4) of the TEQSA Act. Amending the definition of 'qualified auditor' ensures a high degree of probity in that auditors of a higher education provider's financial statements must be a 'registered company auditor' for the purposes of the Corporations Act or otherwise be approved by TEQSA.

Section 9 of the Corporations Act defines registered company auditor as follows:

registered company auditor:

(a) means a person registered as an auditor under Part 9.2; and

(b) in relation to a body corporate that is not a company-includes a person qualified to act as the body's auditor under the law of the body's incorporation.

Providers will be given adequate notice and time to prepare for this amendment as it is not being required for any financial reporting until the reporting period commencing on or after 1 July 2018.

Item 3 - Section 5 (definition of vocational education and training course )

This item amends the definition of vocational education and training course in section 5 of the TEQSA Act to remove reference to 'a course of a similar kind'. The new amended definition of vocational education and training course is a VET course within the meaning of the NVETR Act.

The TEQSA Act currently excludes 'an award offered or conferred for the completion of a vocational education and training course' from TEQSA's remit. The definition of 'vocational education and training course' includes both courses accredited (or required to be accredited) under vocational education laws such as the NVETR Act, as well as 'a course of a similar kind'.

The purpose of this amendment is to ensure that Diplomas, Advanced Diplomas, Graduate Diplomas and Graduate Certificates are required to be accredited under the TEQSA Act or under vocational education and training laws.

Item 4 - At the end of Division 3 of Part 1

Division 3 of Part 1 of the TEQSA Act contains interpretative provisions for the TEQSA Act. This item inserts section 7A that affects the meaning of 'fit and proper person' where it is used in the Act.

Subsection 7A(1) provides that in determining whether a person is a fit and proper person for the purposes of this Act, regard may be had to the matters (if any) specified in a legislative instrument made under new subsection 7A(2).

New subsection 7A(2) provides that TEQSA may, by legislative instrument, make a determination specifying matters for the purposes of subsection 7A(1).

New subsection 7A(3) provides that TEQSA must not make an instrument under subsection 7A(2) unless the Minister has given written approval to the making of the legislative instrument.

New subsection 7A(4) provides that TEQSA must give the Minister such information as the Minister reasonably requires for the purposes of making a decision under subsection 7A(3).

Currently, the TEQSA Act does not contain a requirement that a registered provider, or the persons who make or participate in making decisions that affect a registered provider, must be fit and proper for the provision of higher education. The Threshold Standards 2015 include a requirement at Standard 6.1.2 in Part A that members of a provider's corporate governing body 'are fit and proper persons', though there is no explanation of the basis on which a judgement about whether those members are fit and proper persons is made.

This measure is intended to ensure that all registered providers in the higher education sector, as well as those persons who make, or participate in making, decisions that affect the whole, or a substantial part, of the registered providers' affairs, are required to be fit and proper persons. This is consistent with the arrangements for VSL legislated in 2016.

Regulatory determinations around whether a provider is a fit and proper person to be an approved provider is properly a matter for TEQSA. The matters informing this assessment and evaluation may be set out in a legislative instrument and decision-making for the purposes of subsection 7A(1) is subject to direct Ministerial oversight in terms of the need for written approval under subsection 7A(3) and the requirement to provide the Minister with information as is reasonably required in order for the Minister to grant such approval.

Item 5 - Section 15

This item inserts '(1)' before the term 'TEQSA'. This is a machinery change to section 15 to reflect that it will now include additional subsections.

Item 6 - Subparagraph 15(a)(iv)

Section 15 of the TEQSA Act concerns the principle of reflecting risk (section 13 requires TEQSA to comply with the principles of regulatory necessity, reflecting risk and proportionate regulation, when exercising powers under the Act).

Paragraph 15(a) of the TEQSA Act provides that TEQSA complies with the principle of reflecting risk if, in exercising its powers in relation to a regulated entity, it has regard to the entity's history. Pursuant to subparagraph 15(a)(iv), this includes compliance with the Threshold Standards, the TEQSA Act and its associated provisions and other laws regulating higher education.

This item amends subparagraph 15(a)(iv) to change 'higher education' to read 'education' (i.e. removing the reference to 'higher'). This will require TEQSA to have regard to an entity's compliance with other laws regulating education, such as the NVETR Act.

The Threshold Standards 2011 previously included a requirement that a 'higher education provider's history, and the history of its parent entities, its predecessors and related entities, shows a sound track record in managing business operations and in the provision of education or related services at an acceptable level of quality and in accordance with any applicable regulatory or accreditation requirements.' However, that instrument was revoked by the Threshold Standards 2015 from 1 January 2017, which did not include the previous requirement mentioned above. For this reason, paragraph 15(a)(iv) is being expanded to ensure that the history of parent entities, predecessors and related entities are considered as part of the matters relating to risk when regard is had to the history of persons related to the entity for the purposes of the new paragraph 15(b)(iii) (item 7).

Item 7 - At the end of paragraph 15(b)

Paragraph 15(b) currently specifies matters relating to the risk of an entity not complying with the Threshold Standards, the TEQSA Act or its associated provisions in the future, including those relating to internal quality assurance mechanisms; and financial status and capacity.

This item adds to the specified matters a new subparagraph 15(b)(iii) which enables TEQSA to take into consideration the history of persons related to the entity.

The Threshold Standards 2011 previously included a requirement that a 'higher education provider's history, and the history of its parent entities, its predecessors and related entities, shows a sound track record in managing business operations and in the provision of education or related services at an acceptable level of quality and in accordance with any applicable regulatory or accreditation requirements.' However that instrument ceased to have effect in relation to applications received after 1 January 2017.

This measure is intended to ensure that TEQSA can take account of the history of entities related to an applicant or registered higher education provider, as well as the history of the applicant or registered provider.

Item 8 - At the end of section 15

As noted above, item 7 adds a new subparagraph 15(b)(iii) to section 15 to extend the risk reflection principles to related entities.

Item 8 inserts a new subsection 15(2) that defines the persons that are related to a regulated entity for the purposes of the new subparagraph 15(b)(iii). A person is related to a regulated entity if the person:

•

is able to control, or to materially influence, the entity's activities or internal affairs

•

is able to determine, or to materially influence, the entity's financial or operating policies

•

is financially interested in the entity's success or failure or apparent success or failure

•

is a holding company of the entity

•

is a subsidiary of the entity

•

is a subsidiary of a holding company of the entity.

The intent of subparagraph 15(b)(iii) is to capture instances where that entity or organisation exercises control or material influence over a regulated entity's affairs, including in relation to its financial governance or operating policies, interests in its solvency or liquidity, and any companies which form part of the same corporate group as the regulated entity.

The purpose of the descriptions in new subsection 15(2) is to encompass not only related entities, as the term applies in the context of bodies corporate or relational terminology under the Corporations Act, but also more broadly to all regulated entities, including individuals and bodies politic. The term 'regulated entity' is defined in section 5 of the TEQSA Act.

Item 9 - Subsection 21(1)

This item repeals subsection 21(1) (which currently provides that TEQSA may grant an application for registration if TEQSA is satisfied that the applicant meets the Threshold Standards) and substitutes a new subsection titled 'Grant of application for registration'.

New subsection 21(1) provides that TEQSA may grant an application for registration if TEQSA is satisfied that:

•

the applicant meets the Threshold Standards (paragraph 21(1)(a))

•

the applicant, and each person who makes or participates in making decisions that affect the whole or a substantial part, of the applicant's affairs, is a fit and proper person (paragraph 21(1)(b)).

The purpose of new subsection 21(1) is to bolster the process for provider approval by including a requirement that an applicant not only satisfies the Threshold Standards as defined under section 5 of the TEQSA Act, but also that the applicant and each person involved in the decision-making processes for the conduct of its affairs is a fit and proper person. This empowers TEQSA to exercise a higher degree of rigour in its assessment, by requiring it to consider the probity of key personnel associated with the applicant's operations and to scrutinise participants in the applicant's intended enterprise prior to granting an application.

Item 10 - After section 25

Division 2 of Part 3 of the TEQSA Act sets out various conditions of registration that must be complied with by registered higher education providers.

There is currently no condition requiring that a registered provider, or the persons who make or participate in making decisions that affect the provider, must be fit and proper for the provision of higher education. The Threshold Standards 2015 include a requirement at Standard 6.1.2 that members of a provider's corporate governing body 'are fit and proper persons', although there is no explanation as to the basis upon which a judgement about whether those members are fit and proper persons is made.

This item adds a new section 25A titled 'Condition - fit and proper person' to the conditions in Division 2 of Part 3 of the TEQSA Act.

New subsection 25A provides that a registered higher education provider and all persons who make or participate in the provider's decisions that affect the whole, or a substantial part, of the provider's affairs, must be fit and proper persons.

Item 11 - Subsection 36(1)

This item repeals subsection 36(1) (which deals with a registered higher education provider's application for renewal of registration with TEQSA) and substitutes a new subsection 36(1), which provides that upon receiving a registered higher education provider's application for renewal of registration, TEQSA may renew the provider's registration if TEQSA is satisfied that:

•

the provider continues to meet the Threshold Standards

•

the provider, and each person who makes or participates in making decisions that affect the whole, or a substantial part, of the provider's affairs, is a fit and proper person.

Currently, the TEQSA Act contains no requirement that a registered provider, or the persons who make or participate in making decisions that affect the provider, must be fit and proper for the provision of higher education. The Threshold Standards 2015 include a requirement at Standard 6.1.2 in Part A that members of a provider's corporate governing body 'are fit and proper persons', though there is no explanation of the basis on which a judgement about whether those members are fit and proper persons is made.

This amendment ensures that all providers, as well as those persons who make, or participate in making, decisions that affect the whole, or a substantial part, of the body's affairs, are required to be fit and proper persons.

This is achieved by making it a condition on the renewal of registration of each registered higher education provider that the provider, and all persons who make, or participate in making, decisions that affect the whole, or a substantial part, of the provider's higher education affairs, are required to be fit and proper persons.

Item 12 - After paragraph 199(1)(a)

Currently, under subsection 199(1) of the TEQSA Act, TEQSA may, by writing, delegate any or all of its functions and powers to a Commissioner, or to a member of the staff of TEQSA at the APS Executive Level 1 classification or higher (or an equivalent classification).

This item amends subsection 199(1) to enable TEQSA to also delegate its functions and powers to its Chief Executive Officer. This amendment is aimed at strengthening TEQSA's decision making capacity, in the context of a record number of initial registration applications, as well as a higher proportion of complex or high risk cases than at any previous time in TEQSA's history.

Part 2 - Application provisions

Item 13 - Application of amendments

Item 13 sets out the application provisions relating to measures contained in the TEQSA Act amended by Schedule 2.

Subitem 13(1) provides that the amendment of the definition of 'qualified auditor' in section 5 of the TEQSA Act made by Schedule 2 applies in relation to financial statements for annual financial reporting periods commencing on or after 1 July 2018.

Subitem 13(2) provides that the amendment of subsection 21(1) of the TEQSA Act made by Schedule 2 applies in relation to:

•

applications for registration made after the commencement of the Schedule

•

applications for registration made before the commencement of the Schedule but not yet decided before commencement.

Subitem 13(3) provides that new section 25A inserted into the TEQSA Act by Schedule 2 applies in relation to registered higher education providers registered either before or after the commencement of Schedule 2.

Subitem 13(4) provides that the amendment of subsection 36(1) of the TEQSA Act made by Schedule 2 applies in relation to:

•

applications for renewal of registration made after the commencement of the Schedule

•

applications for renewal of registration made before the commencement of the Schedule but not yet decided before commencement.