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THE LEGAL AND REGULATORY LANDSCAPE: AN UPDATE

SPEAKERS

ALICE FAURE WALKER

HANNAH LYONS

PHILIP KIRKPATRICK

Charity Commission casework – the main themes

• What triggers the Commission’s involvement?

– Media reports

– Serious incident reports

– Review of accounts

– Referrals from other regulators

– Post-registration monitoring

• What is the Commission focussed on?

– Fraud and financial mismanagement

– Abuse of beneficiaries

– Abuse of charity for terrorist purposes

– Conflicts of interest and trustee benefit

What are the Commission’s powers?

• Formal production orders

• Official warnings

• Statutory inquiries

• Power to disqualify trustees

The Charity Commission’s casework - some statistics

• 503 monitoring cases

• 113 proactive inspection and compliance visits

• 894 sets of accounts

• 1,644 operational compliance cases

• Compliance powers exercised 1,099 times

• 187 new inquiries

National Hereditary Breast Cancer Helpline

• Randomly selected from a group of 94 charities whose accounts

raised concerns about their financial position

• Two compliance visits

• Lack of appropriate financial controls and unsustainable financial

model

• Unauthorised payments to the chair

• Informal loans to a trustee

• Failure to comply with the

action plan

• Official warning issued

Military charities

• Group regulatory case report following a proactive review into military

charities

• Triggers

– Increase in registration applications

– Media reports raising concerns regarding

safeguarding and fundraising

• Lack of safeguarding policies in some charities

– Beneficiaries were “vulnerable”

• Trustees had not taken appropriate responsibility for overseeing

fundraising

• One statutory inquiry – Support the Heroes

Protecting charities from terrorist abuse

Some examples

Shade

• Initial engagement in 2015 following failure to submit accounts

• Information from Metropolitan Police regarding a volunteer

• Action plan for charity and publication of regulatory case report

Anatolia People’s Cultural Centre

• Information from Metropolitan Police Counter Terrorism Command:

– Search and closure of premises

– Arrest of trustee on suspicion of terrorism offences (subsequently

acquitted)

– Statutory inquiry

• Charity Commission disqualified the five other trustees for 10 years as

a result of their misconduct and/or mismanagement in the

administration of the charity

More examples

Orphan Relief Fund and Charitable Trust

• Proactively identified for a compliance visit due to work in high risk areas

• Trustees could not provide records regarding overseas expenditure in Iraq

• Payments to trustees without explanation

• Statutory inquiry

• Directed trustees to provide information and documents

Anaya Aid

• Trustee and former trustee stopped by UK Ports Officers carrying £5,000 in

cash

• Same trustee subsequently stopped carrying over €23,000

• Three compliance visits

• Statutory inquiry, direction to take specific actions, order restricting

transactions

Challenges for charities working in high risk areas

• “Half of our regulatory alerts this year were aimed in part at charities

which operate overseas”

2016/17 Annual Report

• New Charity Commission guidance on use of cash couriers

• Charity Commission toolkit on holding, moving and receiving funds

safely in the UK and internationally

• HMRC guidance on sending funds

overseas

• Increasing HMRC scrutiny

• Proposed questions on the new

annual return

Updated guidance on reporting serious incidents

• Increased emphasis on reporting

• A serious incident is “an adverse event, whether actual or alleged,

which results in or risks significant:

– Loss of your charity’s money or other assets

– Damage to your charity’s property

– Harm to your charity’s work, beneficiaries or reputation”

• Most common: frauds, thefts, significant financial losses, criminal

breaches, terrorism or extremism allegations, safeguarding issues

– Examples in the guidance

• The Commission expects prompt reporting

• Be aware of the Freedom of Information Act

Consultation on the Annual Return

• Arrangements with third party fundraisers

• More detail about funding from central or local government

• Additional information about Gift Aid claims

• Information about income received from overseas

– Source: Amber Rudd

• Staff salaries

• More information about payments to trustees

• Further information about expenditure overseas, and methods of

transferring funds

• Rate relief

• How many trustees are directors of any trading subsidiaries?

• Safeguarding

Court and Tribunal cases

• Support the Heroes

– Challenge to the appointment of an interim manager

– The charity’s advisers did not point out the inherent reputational risk

involved in the contract

• Charity Tribunal continues to strike out cases due to a lack of

jurisdiction

• Children’s Investment Fund Foundation

– Duties of members of a charitable company

Other developments

• New faces

• Charging for registration

• New guidance

– Grant funding non-charities

Kids Company

• Risk of disqualification from company directorship

Update on Fundraising Law and Regulation

The Fundraising Regulator

• Established July 2016 – received 800 complaints since launch

• Voluntary, independent, non-statutory regulator of charitable

fundraising

• Funded by levy on all charities with an annual fundraising expenditure

of £100,000 or more

• Charities and commercial fundraisers can now register

for an annual fee:

• £50 for charities

• Sliding scale for commercial fundraisers beginning at £150

Fundraising Regulator – Powers

Set and promote standards of fundraising practice (the Code of

Fundraising Practice and associated Rule Books) in the charitable

sector

Investigate cases where fundraising practices have led to significant

public concern

Adjudicate complaints from the public about fundraising practice,

where these cannot be resolved by the charities themselves

Operate a Fundraising Preference Service to enable individuals to

manage their contact with charities

Where poor fundraising practice is judged to have taken place,

recommend best practice guidance and take proportionate

remedial action

Fundraising Regulator – Remedial Action

Recommending fundraisers undergo training

Seeking evidence of remedial action and a public

apology

Recommend suspension of fundraising and/ or an

independent audit

Publication of findings

Referral to Charity Commission or other statutory

regulator

Case Study – Neet Feet

• Adjudication into Neet Feet (a face to face fundraising agency) and eight

charities.

• Allegations made about the conduct of Neet Feet fundraisers.

• FR found all but one charity to be in breach of section 4.2(b) of the Code - to

make all reasonable efforts to ensure the on-going compliance of third parties

with the Code and their legal requirements.

• FR recommended that charities should:

- have robust contractual arrangements in place with fundraisers;

- review the fundraiser’s training materials and continue to monitor

training;

- conduct mystery shopping exercises as regularly as appropriate; and

- regularly review welcome calls conducted by the fundraiser.

Code of Fundraising Practice

• Changes to the Code:

– Charity trustees

– The fundraising ask

– Monitoring of fundraisers

– Disclosure statements

– Whistleblowing

– FPS

– Current consultation on Data Protection changes (closes 8 December)

Fundraising Preference Service

• A fundraising “reset” service to stop fundraising

communications from charities in a single step

• Launched July 2017

• 9,000 suppressions from 3,700 people

Fundraising Preference Service

• Online form allows selection of up to three charities at a time

• Specify which forms of marketing they wish to stop

• Charities must ensure no further marketing is received within 28 days

• Action to take:

– Check set up to receive FPS requests: contact information on Charity

Commission website

– Consider how to deal with FPS requests

– Nominate an individual to be responsible for handling FPS requests

Charities Act 2016 – Fundraising Agreements

• Commercial participator and professional fundraiser

agreements will need to include:

o details of commercial participator/professional fundraising

scheme/standards to which CP/PF undertakes to be

bound by

o details of how the CP/PF will protect vulnerable people

and others from:

o unreasonable intrusion on privacy

o unreasonably persistent fundraising

o undue pressure to donate

o details of arrangements to enable the charity to monitor

compliance with the agreement

• Failure to comply - the CP/PF is unable to enforce contract

- charity may be in breach

Charities Act 2016 – Annual Report

Charities which have their annual accounts audited must include the following in trustees annual report:

The charity’s “approach” to fundraising, especially if a CP/PF was used

Details of fundraising scheme/standard which it or its fundraisers have agreed to and any failures to comply with these

Whether and how the charity monitored fundraising activities carried out on its behalf

How many complaints the charity has received about fundraising

What the charity has done to protect vulnerable people and others from unreasonable intrusion or persistence, or undue pressure

Sanctions are light touch – request to comply, but double defaulters are investigated

Data Protection Update

• Updates to ICO Guidance

• ICO investigations and fines

• General Data Protection Regulation

General Data Protection Regulation

• 260 pages long (nearly three times the length of the DPA 1998)

• Four years in the pipeline – enacted May 2016

• Comes into force 25 May 2018

• Subject of much negotiation and rumour

• Principles largely remain the same as DPA

• Brexit will not affect its implementation – Data Protection Bill

GDPR – Key Changes

• Key requirements include

– Higher standard of accountability/ record keeping

– Slightly tougher rules on consent (but not mandatory tick box opt-in)

– Much more detailed privacy notices

– More obligations on data processors (agents)

– Prescribed clauses for data processing agreements

– In some cases charities are required to appoint “Data Protection Officer”

– Mandatory breach reporting

– Much higher fines 4% or 20 million Euros

– Increased rights for individuals (e.g. right to be forgotten)

GDPR – top ten tips

1. Ensure existing consents meet the GDPR threshold

2. Ensure can record and comply with withdrawal of consent by

individuals

3. Carry out “balancing test” when relying on legitimate interests

4. Review privacy statements/ privacy policy

5. Review arrangements with data processors

6. Train staff on individual rights

7. Will you need a Data Protection Officer?

8. Keep internal records of processing

9. Update data security policies and train staff to report breaches within

72 hours

10. Risk assessments to reflect higher fines

Charitable incorporated organisations

• An incorporated legal form, regulated by the Charity

Commission

• Available since 2013

• CIOs now account for over half of new charity

registrations

• From 2018 charitable companies will be able to “convert”

to CIO status

Pros of conversion

• Only one regulator

• No need to comply with company law

• No annual charges or fines for late filing

• Receipts and payments accounts available where income

is less than £250,000

• Easier email communication with members

• No PSC register

• Register of members not open to the public

• Decision making by consensus

Cons of conversion

• Relatively new and unfamiliar legal form

• No established legal framework to fall back on

• No central Register of Charges

• Fewer rights for members

• Less easy to make decisions by members’ written

resolution

• Amendments to constitution don’t take effect immediately

• More restrictive conflicts of interest regime

• Uncertainty on dissolution

The conversion process

• Draft a CIO constitution

• Special resolution to convert

• Special resolution to adopt the constitution

• Apply to the Charity Commission

• Registration at Companies House cancelled

• No change in legal status

– Same charity number

– Legal relationships remain

• Queries over pensions and Companies House charges

• Staggered conversion programme – smaller companies

first

Automatic disqualification of trustees

• More people will be automatically disqualified from serving as charity

trustees or holding senior management positions in charities

– Conviction for offences involving:

• Terrorism, money laundering, bribery

• Misconduct in public office, perjury, perverting the course of

justice

– Contempt of court, disobedience to Charity Commission order

– Designated person under terrorism legislation

– Sex offenders register

• Not yet in force

– Concerns of rehabilitation charities

Charity Governance Code

• Charity Commission has withdrawn its guidance “Hallmarks of an

Effective Charity”

• Two versions of the Code

• Seven key principles:

– organisational purpose

– leadership

– integrity

– risk and control

– board effectiveness

– diversity

– openness and accountability

Brexit

• Grant funding from the EU

– Setting up an establishment elsewhere in Europe

• Protection of trade marks

• Future of EU nationals

• Future of UK funding

Tax

• Changes to the HMRC declaration

• Social Investment Tax Relief

• Expansion of the Gift Aid Small Charitable Donations Scheme

– No need to be registered for Gift Aid

– Contactless payments can qualify

Transparency

• Common Reporting Standard

– Unincorporated charities which:

• Derive at least 50% of their income from investment

• Use discretionary investment managers

• Make cash grants to their beneficiaries

– Must file information with HMRC (since May 2017)

• People with Significant Control

– Applies to AIM companies and some Royal Charter bodies

– Changes to must be notified to Companies House within 14 days

• Charitable trusts

– Required to keep information about “beneficial owners”

– Register with HMRC if a tax liability

Law Commission report

• “Removing unnecessary or inefficient regulation while

safeguarding the public interest in ensuring that charities

are properly run”

• Will it become law and if so, when?

Headline proposals

• Amendment to governing documents

– Easier for unincorporated charities and Royal Charter

bodies

• Charity land

– Estate agents can give advice on disposal

– Qualified staff and trustees can give report

– More practical advice requirements

Headline proposals

• Trustees

– Power to pay for goods

– Charity Commission power to authorise past

remuneration

– Charity Commission power to ratify appointments

• Make ex gratia payments easier

• Simplify process of spending permanent endowment

• Technical changes to simplify mergers

• General recommendation to review the basis on which

Charity Commission decisions can be challenged

Essential reading for charity trustees

– CC3 The essential trustee: what you need to know

– Public benefit guidance

– It’s your decision

– Serious incident reporting

– Charity Governance Code

– Code of Fundraising Practice

Bates Wells Braithwaite

10 Queen Street Place, London EC4R 1BE

Tel: 020 7551 7777

Website: www.bwbllp.com

Email: p.kirkpatrick@bwbllp.com

h.lyons@bwbllp.com

a.faurewalker@bwbllp.com