Regulatory framework for TEI investment in related entities

New legislation

New legislation makes several changes to the regulatory framework for Tertiary Education Institution (TEI) investment in related entities. The changes:

  • clarify that TEIs are not required to seek the Minister of Finance’s approval for investments in related entities
  • reinstate the requirement for parent level reporting, which was inadvertently removed by the Crown Entities Amendment Act 2013;
  • give the Minister responsible for Tertiary Education a new power to require information about a related entity, if there are reasonable grounds to believe the entity poses a risk to a TEI.

These changes will work together to create a modern, fit-for purpose regulatory framework that strikes an appropriate balance between encouraging innovation and managing risk.

Previous situation

Under the Education Act 1989, TEIs have the power to invest money and to acquire securities in related entities. This power is subject to section 65l of the Public Finance Act 1989, which requires the Minister of Finance to approve all investments, other than deposits with a bank or in public securities. This means that the Minister of Finance currently needs to approve TEI investments in related entities.

Impact of the legislation

The legislation clarifies that section 65I of the Public Finance Act 1989, applies only with regard to investing surplus cash. This change means that TEIs are no longer required by law to seek the Minister of Finance’s approval for investments in related entities and do not need to undertake any form of pre approval process for these investments. 

Why the change?

For the most part, TEIs have not been seeking the Minister of Finance’s approval when investing in related entities. This follows advice TEIs received in the mid 1990s from the Ministry of Education, the Office of the Auditor-General (OAG), the Treasury, and Crown Law that any investments made for educational purposes did not need approval. The Government’s current legal advice, however, is that this interpretation is incorrect and that related entities should be seeking the Minister of Finance’s approval for investments in related entities. 

Enforcing section 65I of the Public Finance Act 1989 in relation to related entity investments would place a heavy compliance burden on TEIs, potentially limited their ability to be outward looking and innovative. Further, the Treasury has advised that section 65I is inappropriate for authorising investments in related entities. This is because section 65I is designed to regulate investment by the Treasury of cash that is temporarily surplus to the Crown’s requirements, not to regulate the establishment of related entities, such as subsidiary companies, whose purpose is to progress business interests.

 

 

 

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