The Charities (Protection and Social Investment) Act 2016 received Royal Assent on 16 March 2016. The Act gives significant powers to the Charity Commission, reforms the regulation of charity fundraising and enables charities to make social investments.
The Act came about following investigations by the Charity Commission, the Public Accounts Committee and the National Audit Office into The Cup Trust, a former registered charity which had been established as a vehicle to misuse charity tax reliefs.
During those investigations concerns were expressed that the Charity Commission was spending too little of its time and resources on its enforcement activity. In turn the Commission argued that it needed more funding and tougher regulatory powers in relation to charities and trustees.
The Cabinet Office published a consultation in December 2013 proposing wide-ranging new enforcement powers, and a draft bill was subsequently introduced. A joint committee of MPs and peers then took evidence from a range of stakeholders and published a report in February 2015 which supported proposals made by the Cabinet Office. Independently, the Law Commission proposed reforms to make it easier for charities to make social investments, which were then added to the bill.
The renamed Charities (Protection and Social Investment) Bill was introduced in the House of Lords in May 2015. Shortly afterwards charities faced renewed criticism over certain intrusive fundraising practices. New clauses were therefore added to the bill to address these concerns.
Parliament accepted these changes and the bill received Royal Assent on 16 March 2016
New Charity Commission powers
Amongst the new powers granted by the Act, the Charity Commission will now have the ability to issue public warnings to charities and trustees where it considers a breach of trust or duty or other misconduct or mismanagement has occurred.
People with criminal convictions for money laundering, terrorism and sexual offences will be automatically excluded from serving as trustees or working in the senior management of charities; however, it is expected that this part of the Act will not take effect for a further 12 months to allow people and or charities effected by this provision so apply for a waiver.
In addition, the Commission will also be able to suspend or disqualify trustees or other senior managers from being involved in the management of a charity if it judges that any of their past or continuing behaviour is likely to damage the public’s trust and confidence in the charity sector.
Parliament has given the charity one last chance to see if self-regulation can work.
Under the new Act, if the new Fundraising Regulator is deemed to be failing to properly regulate the sector, the Government will be able to either set up a statutory regulator or pass full control of fundraising regulation to the Charity Commission.
Section 15 of the Act amends the Charities Act 2011 by giving charities a statutory power to make social investments i.e. applying or using funds or other property, or taking on the liabilities of another person (e.g. a guarantee) which puts the charity’s funds or other property at risk provided that the charity does so with a view to both (a) directly furthering the charity’s purposes; and (b) achieving a financial return for the charity.
Before exercising the statutory power, trustees must (a) consider whether in all the circumstances any advice about the proposed social investment ought to be obtained; (b)obtain and consider any advice they conclude ought to be obtained; and (c) satisfy themselves that it is in the interests of the charity to make the social investment, having regard to the benefit they expect it to achieve for the charity (by directly furthering the charity’s purposes and achieving a financial return).
Trustees must also periodically review the charity’s social investments.
Protection for housing associations?
In an attempt to block the Government’s extension of right-to-buy schemes to housing associations, the House of Lords had inserted a clause into the bill to ensure that “charities are not compelled to use or dispose of their assets in a way which is inconsistent with their charitable purposes”. This amendment was removed by the House of Commons after the Government came to a deal with the National Housing Federation which will see its members voluntarily deliver the policy.
Only sections 16 and 17 of the Act came into force on 16 March 2016. Section 16 requires the Minister for Civil Society to review how the Act has affected public confidence in charities, the level of charitable donations, and people’s willingness to volunteer.
Throughout the debates concern was raised that without further safeguards the Charity Commission could potentially misuse its new powers and cause significant reputation damage to charities and their trustees. Whilst the Charity Commission will consult on how it will implement its new powers, it has not yet set a timetable for doing so.