Charities (Protection and Social Investment) Act 2016 received royal assent in March and will be brought into force in several tranches over the course of the next year. 

The Act started life as a response to the Government’s commitment to help the Charity Commission to plug gaps in its powers, and to provide new powers to help combat misconduct or mismanagement in charities.

It was then used to clarify provisions relating to charities ability to make social investments. 

Finally, as the Bill passed through the Commons last summer, the Government also tacked on a number of additional provisions relating to fundraising. This followed Olive Cooke’s death and the exposé on the GoGen telephone fundraising agency in the Daily Mail. 

What we have ended up with is an amalgam of provisions which are now wider ranging than the name of the Act suggests. The key changes, and the dates upon which they will come in to force, are set out below:

July 2016

The Commission’s investigatory powers during an Inquiry are extended

In July eight new powers for the Charity Commission come into force. These enhance the powers of the Commission once an Inquiry has been opened.  In outline these powers will:

  • Extend the right for the Commission to suspend a trustee from 12 months to 2 years
  • Widen the scope of conduct that the Commission  can take into account when deciding what action to take against a trustee who has been involved in misconduct or mismanagement in a charity, so that the Commission can also consider an individual’s conduct in relation to any other charity, and any other conduct which is likely to be damaging to public trust and confidence in charities generally
  • Enable the Commission to make an order to remove a trustee, so that the trustee will be disqualified from acting – even where he has resigned before the Order can be made
  • Allow the Commission to make an Order directing trustees not to take or continue any action, where to do so would constitute misconduct or mismanagement in the charity
  • Give the Commission power to direct that a Charity be wound up where the Commission is satisfied that the charity does not operate or that its purposes can be promoted more effectively if it ceases to operate
  • Enhance the power of the Charity Commission to direct third parties to apply charity property.

The Commission has a  new discretionary power to disqualify a trustee

The most significant of the new powers being enacted in July is the new discretionary power for the Charity Commission to disqualify a charity trustee.  Where a trustee is disqualified under this new power they also cannot hold senior management functions within a charity. 

The Commission will be able to disqualify a trustee where:

  • One or more of the six conditions set out below is met
  • The person is unfit to be a charity trustee
  • Making the order is desirable in the public interest in order to protect public trust and confidence in charities generally.

The six conditions are:

  1. a person has been cautioned for a disqualifying offence against a charity
  2. a person has been convicted outside the UK for an offence which would have disqualified him from acting if done in the UK
  3. HMRC has found the individual not to be a fit and proper person (for the purposes of paragraph 4 of Schedule 6 to the Finance Act 2010)
  4. the person was a trustee or employee of a charity at a time when there was misconduct or mismanagement of a charity and they were responsible, or knew about it and failed to take reasonable steps to oppose it or their conduct contributed to it
  5. the person was an officer or employee of a body corporate, in similar circumstances as in 4
  6. any other past or continuing conduct by the person is damaging or likely to be damaging to public trust and confidence in charities generally

The Commission is currently consulting on its policy paper on how it will use this power, and how it is likely to interpret each of these six conditions.

Charities receive a new statutory power to make social investments

The Commission has promised to update its investment guidance in time for the introduction of this power in July.  A social investment (now defined in Clause 292A of the Charities Act 2011) is one which a charity makes with a view to both (a) directly furthering a charity’s purposes and (b) achieving a financial return.

The power gives charities (but not statutory corporations or charter bodies) the power to make social investments, in addition to any existing power they may have.  All social investments made after July, whether or not they use the statutory power must:

  • Consider whether in all the circumstances any advice about the proposed social investment ought to be obtained;
  • Obtain and consider any advice they conclude ought to be obtained; and
  • Satisfy themselves that it is in the interests of the charity to make the social investment having regard to the benefit they expect to achieve for the charity.

Trustees are also obliged to carry out a review of the charity’s social investments on a periodic basis.  Any charity making social investments will need to familiarise itself with the new duties and ensure that its decision making is properly documented.

October 2016

The October commencement order is expected to see the introduction of two new measures relating to charity fundraising.

Fundraising agreements must cover additional matters

From October three additional requirements must be included in written agreements with commercial participators and professional fundraisers. The agreements will need to set out clearly:

  • Any voluntary scheme for regulating fundraising or any voluntary standard of fundraising that the professional fundraiser or commercial participator undertakes to be bound by
  • How the professional fundraiser or commercial participator will protect vulnerable people and others from unreasonable intrusion on a person’s privacy, unreasonable persistent approaches for the purpose of soliciting money or other property or placing undue pressure on a person to give money or other property
  • Arrangements enabling the charity to monitor compliance with these two provisions.

A fundraising statement is required in the annual report for large charities

The fundraising statement must include:

  • The approach taken to fundraising
  • Whether the charity agreed to be bound by any voluntary scheme for regulating fundraising or any voluntary standard
  • Any failures to comply with those standards
  • How the charity monitors its fundraising activity
  • The number of complaints received
  • What has been done to protect vulnerable people and others from unreasonable or intrusive behaviour.

Power to issue a warning notice to charities and charity trustees

Rather controversially, from October the Charity Commission will have a new (non-appealable) power to issue a warning notice to charities and charity trustees. This warning can be issued at any time where the Commission believes that there has been misconduct or mismanagement, or a breach of trust or duty. The Commission must give notice and allow representations to be made before the notice is issued. The notice must also specify what the Commission considers should be done to rectify the position.  A warning notice can be publicised by the Commission, and carries a clear risk of adverse publicity.

As the Act was going through Parliament the Commission was at pains to explain this power would be used only to deal with low or medium level concerns about charities failing to comply with their responsibilities. The Commission has committed to consulting on the use of this new power later this month, and we should then have a better idea as to how and when the Commission will use this new power.

April 2017

Scenarios requiring the automatic disqualification of a trustee will be extended

The list of offences which result in automatic disqualification from being a  trustee is being extended to include terrorism and money laundering offences and individuals who have been convicted of certain sexual offences.  Any person disqualified from being a charity trustee will also be prohibited from holding senior management positions within a charity.  Those charities who ask new trustees to sign a declaration of eligibility, will need to ensure that all relevant forms are updated in good time.