This Act also formed a "higher education (HE) sector" in Scotland, transferring various powers and duties related to HE institutions to the funding councils.

[10] In April 2004, the Scottish Executive published a consultation paper requesting comment on a possible merger of the SFEFC and SHEFC.

This Act established the Scottish Further and Higher Education Funding Council, set out its role and functions, and made provision for the dissolution of the SFEFC and SHEFC.

[1] The SFC was established as a non-departmental public body,[4] meaning it operates with partial autonomy from the Scottish Ministers and may act in an advisory role.

[11] The council typically receives a letter of guidance from the Cabinet Secretary for Education and Lifelong Learning each year.

[12][13] Under schedule 1 of the 2005 Act, the SFC was transferred all staff, property, and liabilities of the SFEFC and SHEFC, effectively merging the two councils.

A regional strategic body is a body corporate created under the Act to ensure that the colleges in its assigned region provide high-quality education and to make and oversee the carrying out of plans for its colleges to deliver further and higher education.[5]: (ss.

12A–12B) Effective 1 April 2014, the Office for National Statistics (ONS) reclassified Scotland's further education colleges to the public sector.

However, unlike its English counterpart HEFCE, the SFC does not act as the charities regulator for colleges and universities.

[20] The SFC provides advice to the Scottish Ministers relating to Scotland's HE and FE sectors.

The council is also afforded the right to directly advise and address fundable bodies regarding their SFC-provided funding.[5]: (ss.

The SFC is permitted to perform a number of assessments and studies on issues relating to its funding of bodies.

[22] The various committees oversee areas such as improving knowledge of the skills required by the Scottish economy in partnership with Skills Development Scotland;[23] supporting research and knowledge exchange by HE and FE institutions;[24] reporting on and promoting equality, diversity, and participation in education;[25] monitoring the financial performance of the HE and FE sectors, and monitoring the council's internal risk management, corporate governance, and auditing;[26] monitoring and reporting on the internal finance matters of the council;[27] and making decisions, with the agreement of the Scottish Government,[5]: (Sch.

The Innovation Scotland Forum is a working group which discusses related national policy, and provides advice to the SFC and the Scottish Government.

The Corporate Services Directorate has responsibility for council communications, project delivery, website administration, human resources management, and information technology.

The directorate also provides guidance and funding to the SFC's fundable bodies for work towards compliance with the Climate Change Act 2008.

[41]: 3  In 2009, the SFC threatened to claw back money from Stow College after it claimed £988 000 in funding for courses that the Auditor General for Scotland deemed to have been ineligible.

[42][43] After reviewing the eligibility of the college's programmes for funding, the SFC clawed back £2.88 million, to be paid over seven years starting November 2009.

[52] The Innovation Centres are not listed as fundable bodies, and so are not eligible for funding the same sense HE and FE institutions are.[5]: (Sch.