Charity Law and Governance

01 August 2016

Moira Protani

Newsletter for August 2016

The Charity Commission and the Fundraising Regulator

An updated memorandum of understanding has been published.  It sets out a protocol for dealings between the Charity Commission and the newly established Fundraising Regulator.  The intent is reasonably clear and the Fundraising Regulator, which is a non-statutory public body, will take the lead in investigating poor fund-raising practices and taking action to prevent it.  Failure to abide by the Fundraising Regulator’s recommendations should lead to action being taken by the Charity Commission.

The relationship between the Commission and the Regulator is not, however, a model of clarity and the reader should not be ashamed if his or her eyes droop as one paragraph follows another.  It is not quite up to the shenanigans at the Circumlocution Office in Charles Dickens’ Bleak House – but it comes close.   There are some unfortunate grammatical errors, typos and omissions that would not, however, be found in a Dickens’ novel. There is a referral process and an information disclosure process.

The Commission and the Regulator each appoint officers to act as (single) points of contact to be known as SPOCs. (YES, REALLY!).  The Commission’s SPOC will be an officer at operational level within the Commission but we are told that he/she will be an intelligence SPOC for all other purposes.  We are told that this will facilitate the flow of information between SPOCS.  Ha, ha.  This is followed by warm words about referral and information disclosure with appropriate speed, progress reports from one SPOC to the other and all to be protected under the most appropriate Government Security Classification system being either OFFICIAL, SECRET OR TOP SECRET.

After readers have absorbed all of this, we are told that other points of contact will be established at operational, legal or policy level who may designate points of contact for ongoing liaison between the Commission and the Fundraiser.  There is an Escalation Protocol -(perhaps for those times when the SPOCs just can’t agree or won’t speak to each other - in which case the protocol in Appendix A requires the Intelligence Analyst for the Charity Commission and the Policy Advisor for the Fundraising Regulator to liaise and clear the blockage (this bit is headed rather ominously “NOT FOR PUBLICATION”).

One can only hope that this memorandum of understanding will facilitate effective regulation of those who carry out fund-raising and that vulnerable people will be protected from some of the predatory practices which have been reported by the media and the press in recent times.

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Companies House – Persons with Significant Control

Charities which are established as companies (and their subsidiary companies) must now:

• Identify persons with significant control over the company;
• Record the details on a register and keep it updated
• Provide this information to Companies House

 Persons with significant control are

• Individuals that hold, directly or indirectly, more than 25% of the shares or voting rights in the company

• Individuals that hold the right, directly or indirectly, to appoint the majority of the board

• Individuals that have the right to exercise or do exercise a “significant influence or control” over the company.

Further guidance is expected on this area in autumn 2015.

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Charities (Protection and Social Investment) Act 2016

This legislation has combined an extension to the regulatory powers of the Charity Commission with a new power for trustees to make social investments.

With effect from 31 July the following provisions of the Act (highlights only!) have been brought into force:

Section 2

Section 76 of the Charities Act 2011 sets out the Charity Commission’s regulatory powers which are exercisable after it has opened an inquiry into a charity.  The circumstances in which the Commission can exercise its powers have been extended by Section 2 to include where trustees have failed to comply with an order or direction of the Commission or where trustees have failed to remedy any breach specified in a warning issued by the Commission. Parts of this section will be delayed until later in the year when the Commission’s power to give a warning comes into force.

Section 3

When deciding whether to exercise its regulatory powers in relation to a charity, if the Commission is satisfied that the culpability, knowledge or conduct of a particular person lead to misconduct or mismanagement in that charity, the Commission can also take account of that person’s conduct in relation to another charity or any other conduct of that person which the Commission considers to be damaging to public trust and confidence in charities generally or in particular types of charity.

This is a very wide power indeed.  For example, it enables the Commission to have regard to conduct by a person which is not necessarily relevant to the charity which is the subject of the inquiry.

Section 4

The Charity Commission’s previous power to remove a trustee of a charity can now be exercised even if that person has already resigned as a trustee.  Until now, the Commission was unable to prevent a person from being appointed as a trustee of any charity unless he/she had previously been removed as a trustee by the Commission.

Section 6

After it has opened an inquiry into a charity, the Commission can make an order to prevent a charity, its trustees and employees from taking specified actions .

Section  7

There is a new power for the Charity Commission to direct by order that a charity, its trustees, an officer or employee of the charity should take action to wind up the charity.

Section 9

The circumstances for automatic disqualification to be a trustee have been extended to include where a person

• has been found to be in contempt of court for making false statements or disclosures or
• has disobeyed an order or direction of the Charity Commission or
• is a designated person under Part  1 of the Terrorist Asset-Freezing Act 2010 or the Al-Qaida (Asset-Freezing) Regulations 2011
• is subject to the notification requirements of Part 2 of the Sexual Offences Act 2003.

Section 14

The Charities Act 1992, which regulates commercial participators and professional fund-raisers has been amended to include a power for regulations to be made which will require those affected to comply with requirements imposed by a regulator, to have regard to guidance issued by the regulator, to pay fees to the regulator and to be registered with the regulator.

The Fundraising Regulator has also been set up – see my comments at the start of this newsletter!

Section 15

Charities now have the power to make social investments.  There are exceptions applicable to charities which are permanently endowed or where the governing document prohibits social investment.  Before making a social investment, trustees must:

• consider whether advice should be obtained
• if so, they must obtain the advice
• satisfy themselves that it is in the interests of the charity to make the social investment

Trustees must review their social investments from time to time and seek advice if necessary.

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