Overview of Commission aims and new powers
The Commission has various statutory objectives, which include:
- increasing public trust and confidence in charities;
- promoting compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities; and
- promoting the effective use of charitable resources,
and six general functions, one of which is to “identify and investigate apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities.”
The new powers under the Act include (but are not limited to):
- Official warnings (section 75A) to a charity trustee, a trustee for a charity or a charity in relation to a breach of trust or duty or other misconduct or mismanagement;
- Power to consider a range of conduct in relation to suspension of trustees (Section 76A);
- Power to remove trustees etc. following an inquiry (Section 79);
- Power to remove disqualified trustee (Section 79A); and
- Powers to direct specified action not to be taken (Section 84A).
The amendments to the Act provide the Commission with new or strengthened powers to tackle abuse, misconduct and mismanagement of charities more effectively and efficiently, reinforcing the responsibilities of trustees and protecting charities from individuals who are unfit to be trustees.
Current regulatory practice
A report published by the Commission on 29 January 2019, confirms that the Commission has used its new powers on over 130 occasions since the Act was amended, and that the action taken varies from issuing official warnings and directions to disqualifying and suspending individuals from trusteeship.
Unlike other regulators, the Commission is explicitly required through the Act to have regard to the principles of best regulatory practice when exercising its functions, such principles include taking action only when required and ensuring that such action is proportionate to the aims to be achieved. The Commission has been clear that it is seeking a preventative as opposed to a reactive approach by intervening at an earlier stage to prevent harm (See Commission Five Year Strategy).
The Commission has identified a number of areas where there are lessons for trustees, including, insider fraud, safeguarding, reporting of serious incidents, counter-terrorism and data protection.
The lessons to be learned are based on the fundamental principles of good governance as reinforced by the fiduciary duties of trustees, such as:
- effective boardrooms where challenge is encouraged so that decisions are made in the best interests of the charity; and
- strong internal financial management so that resources are appropriately managed and applied to further the charity’s objectives.
Other important considerations include self-regulation so that the charity reports incidents when necessary and without delay and having policies and procedures in place to take action, if necessary, on issues such a terrorist activity.
Official Warnings
Official warnings are a really useful tool for the Commission so that issues are addressed in a proportionate way. The Commission assesses risk through its Regulatory and Risk Framework, and will follow this framework when determining the regulatory approach which is appropriate. It is anticipated that official warnings are likely to be used for unauthorised payments (e.g. payments to connected parties), governance problems or where a statutory inquiry under Section 46 would be disproportionate.
By way of example, a recent official warning relates to the RSPCA, whereby it is alleged that the officers, as defined in the warning, of the RSPCA failed to ensure that they were sufficiently informed prior to taking a decision regarding the settlement of the former acting chief executive and failed to act with reasonable skill and care in relation to the negotiation of the settlement.
Further, the most recent official warning issued to the Institute of Economic Affairs relates to an instance where the Commission considers that the charity have committed a “breach of trust or duty, misconduct, mismanagement in the administration of the charity” by taking part in activity which failed to further the charity’s charitable purpose.
Charities should be mindful that if they are issued with official warnings these may be published to promote accountability and transparency. While a warning itself is not an order or direction, breaching a warning can be used as evidence of misconduct/mismanagement, which may result in further regulatory acting, for example, the suspension of a trustee pending consideration regarding their removal under the Act.
How we can help
We regularly advise charities on a range governance and compliance issues including:
- bespoke training to trustees;
- guidance on the duties and responsibilities of trustees;
- advice on corporate compliance including anti-corruption and modern slavery and assistance with drafting corporate policies;
- guidance on the regulatory powers of the Commission and advice on relationships with the Commission;
- advice and support in setting-up charities (including appropriate structure) and amending governing documents; and
- advice on commercial contracts.
