Fundraising is still big news for the charity sector
Sarah Clune considers various legal developments that will affect charities in the coming months, including the introduction of the Charities Act and the PSC register requirements
The Charity Commission has recently issued its updated guidance on fundraising (CC20). The guide is a must-read for charities which sets out six principles the trustees should follow. These principles are:
Supervise your fundraisers;
Protect your charity's reputation, money, and other assets;
Follow fundraising laws and regulation;
Follow recognised standards for fundraising; and
Be open and accountable.
The Fundraising Regulator (FR) will start its work in early July. From its launch date, the FR will take over complaint handling from the Fundraising Standards Board, the Code of Fundraising Practice from the Institute of Fundraising, and the rule books on street and door-to-door fundraising from the Public Fundraising Association. There will be a memorandum of understanding between the FR and the Charity Commission, recognising that when fundraising issues arise within a charity they can often be a symptom of other governance problems. The FR will issue guidance for charities in due course.
The Charities (Protection and Social Investment) Act 2016 received royal assent in March. The Act changes charity law in four key areas:
Disqualification of charity trustees: The Charity Commission will have a new power to disqualify people from serving as trustees. While a person is disqualified under this power, they are also disqualified from holding senior management positions within the charity or charities concerned. The commission has recently launched a consultation in relation to its new power. Its policy paper, which it is seeking views on, sets out the three tests in the Act that have to be met before the commission can make a disqualification order; the factors that the commission will take into account for each of the tests, together with the relevant principles of good regulation and the human rights and equalities protections that it will apply; and the commission's approach to deciding on the length of the disqualification (up to a maximum of 15 years). Charity practitioners should consider the guidance and respond to the consultation where appropriate. The Charity Law Association will also be submitting a response. The consultation closes on 22 August 2016;
Charity Commission powers: The Charity Commission now has more regulatory powers over charities, including a new power to give official warnings to charities. These are potentially relevant to all charities, but in practice will only apply where the commission has regulatory concerns. The commission will be consulting on how it will use the official warning power, which will be available from October. That consultation is likely to start in late June;Fundraising: The Act imposes more controls over the relationship between charities and commercial organisations that raise funds on their behalf. All charities that have relationships with professional fundraisers and/or commercial participators need to ensure that their fundraising agreements are compliant with these new requirements. Larger charities will be required to include a new statement about their fundraising practices in their annual reports. The Act also includes new powers for the government to support and intervene in the regulation of fundraising; and
Social investment: Charities' powers to make social investment are now confirmed by statute. The commission is updating its investment guidance in time for the introduction of the power in July.
'Persons interested' case
The Upper Tribunal has ruled on a 'persons interested' case in Nicholson v Charity Commission  UKUT 0198. The appellants disagreed with a decision of the Charity Commission not to remove certain charities from the register, and they argued that they were 'persons interested' so that they had standing to appeal the decision on the grounds that they were taxpayers, and therefore had an interest in preventing organisations that were not charities from receiving tax benefits, and they were donors who had been misled.
The tribunal found that a deeply held and continuing objection is not enough to be interested so as to bring an appeal. Further, the appellants in this case had suffered no specific disadvantage as a result of the decision of the commission: they had not had any of their rights infringed, and they were not affected any more than any other member of the public. PSC register
Many charities are nowadays structured as charitable companies, mainly as companies limited by guarantee, and therefore they need to be aware of the impact on them of the Small Business, Enterprise and Employment Act 2015, which introduces, along with other provisions, the register of people with significant control (PSC register).
The requirements apply to all companies other than those that are subject to other transparency rules (e.g. listed companies). The new regime does not currently apply to other entities such as charitable incorporated organisations (CIO) or limited partnerships. However, while charities such as CIOs, royal charters, part 12 incorporated trustee bodies, trust corporations, and others may not need to hold their own PSC register, they must consider their overall governance structure and decide whether they should be included on the PSC register of another UK company.
The PSC register is a statutory register for companies which lists individuals and legal entities that have significant control over them. This is in addition to keeping other information, such as a register of members and a register of directors. Failure to put a register in place and keep it up to date will be a criminal offence by both the company and its directors. The requirements are aimed at increasing transparency around who controls UK companies and to deter and sanction those who hide their interests.
The requirement to keep a PSC register came into force on 6 April 2016. From 30 June 2016 companies will have to submit this information annually to the central register at Companies House when making a confirmation statement, which will replace the annual return. In addition, from 30 June 2016 those seeking to incorporate a new company will have to submit a statement of initial significant control to Companies House, alongside the other documents required for an application to incorporate. The Department for Business, Innovation and Skills has produced various guidance notes to assist companies with interpreting the legal requirements and putting a PSC register in place.
The Charity Commission has published reports on its investigations into whether grants made by The Roddick Foundation and The Joseph Rowntree Charitable Trust to the non-charitable organisation Cage were in furtherance of their charitable purposes.
The regulator concluded that both charities intended to fund programmes that were capable of furthering charitable purposes. However, the commission was not convinced that the charities' trustees had understood which of Cage's activities were capable of furthering charitable purposes, or that they had monitored the end use of funds sufficiently to be satisfied that they had been spent exclusively on charitable purposes.
Both charities have been advised to improve their grant-making and monitoring procedures, for example by including terms in their grants to enable funds to be 'clawed back' where no evidence is provided that the recipient has spent them exclusively on charitable activities.
Following the Cage controversy, the commission published draft guidance for charities on funding non-charitable organisations. The period for comment has now closed and we expect the final guidance to be made available soon.