The Charities (Protection and Social Investment) Bill has reached the House of Lords Committee Stage. The main purpose of the Bill is to address the lack of enforcement powers available to the Charity Commission. We set out in this note a summary of the constituent parts of the Bill.
The Bill aims to increase the Commission’s powers to act to prevent abuse in charities within the scope of the principles of best regulatory practice, acting in a way that is “proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed”. Additionally, the Bill clarifies powers relating to social investments.
The Bill contains 14 substantive clauses designed to:
• Deal with loopholes in the current regime;
• Grant basic powers to the Commission that a modern regulator would normally have;
• Enable the Commission to use effective, targeted and proportionate sanctions;
• Deal with the complicated issues that have arisen as the Commission’s work becomes more complex by granting more nuanced and sophisticated powers; and
• Act as a deterrent.
Under the proposed legislation, the Commission will be able to issue official warnings to charities or trustees as a way of dealing with low level breaches of statutory provisions of the Charities Act 2011 or fiduciary duties. For example, a charity may receive an official warning if it is consistently a little late in submitting its accounts.
Breach of a Commission order or warning will in itself be misconduct sufficient to result in other compliance measures. Such measures will include opening an inquiry into a trustee or disqualification. The Bill will give the Commission the power to extend a protective suspension (currently limited to 12 months) while other proceedings or investigations are still pending.
The Commission will be able to take into account conduct outside the scope of the charity once an inquiry is open and mismanagement or misconduct has been found.
The Commission will have the power to remove trustees following an inquiry. This closes the current loophole that means resignation is a means to avoid disqualification.
The Commission will have improved powers to remove disqualified individuals from post.
The Commission will have the power to direct charities not to take certain actions in the context of a statutory inquiry.
In rare circumstances, the Commission will have the power to direct that a charity be wound up where it can be shown that the continued existence of a charity would be harmful.
The Commission will have the power to direct property to be applied to another charity. The Bill amends the current position so that compliance with a Commission order does not result in a breach of the contractual obligations of the charity
Powers surrounding the automatic disqualification of trustees will be extended to cover serious offences such as convictions for money laundering, terrorism and bribery. It will also prevent those who have been disqualified as a trustee from being able to act in another post within the charity.
The Commission will have powers to disqualify trustees who meet a certain criteria to be defined in the proposed legislation. Further consultation is required to finalise the scope of this clause.
Under the proposed legislation, the register of disqualified trustees will be extended to include details of trustees disqualified as a result of the extended powers granted by proposed legislation or those in non-trustee positions removed under section 76 Charities Act 2011.
The Commission will have powers to prevent disqualified individuals from participating in decisions about charity affairs. For example, if the individual is a corporate director of the charity.
The position will be clarified in relation to a charity’s or trustee’s power to make social investments to achieve both social and financial return. The Bill will set out the duties of the trustees when using this power.
The operation of the proposed legislation must be reviewed by the Minister for the Cabinet Office within five years of the Act being passed.
The House of Lords report stage on the Bill is scheduled for 20 July 2015. As the Bill moves through the legislative process we will continues to provide updates on its content and the impact it will have on charities and trustees.