Regulation doesn’t hold much fascination for many people, and it certainly isn’t a glamorous topic. Perhaps that’s why the Commission’s new regulatory approach attracted so little comment when it was published a few weeks ago.
However the publication does signal a significant change at the Commission, which will affect all charities.
Accountability rests with trustees
As its starting point, the Commission makes clear that responsibility for administration and management of charities rests with trustees; it is trustees who are accountable. The regulator says it will set out the basic principles all trustees should follow to help trustees in this task. Beyond this the Commission makes clear that, unless it has a regulatory concern, it will not intervene except where it is legally required to grant a permission or to give a consent. The one exception it quotes is where advice is needed on complex charity mergers and restructures. Instead, put simply, trustees will be expected to ‘get on with it’. I think that we will now see the Charity Commission being very hard headed about when and how it will engage with charities.
Charities getting their own legal guidance
The extent of the regulatory engagement that the vast majority of charities have with the Commission is, and will continue to be, through completing and submitting an annual return, along with their trustees’ annual report and accounts. Those organisations which are operating along established lines may experience little change. However, those charities who were used to contacting the Commission for advice and help, or simply because they viewed the regulator as an important ‘stakeholder’ could be in for a shock. In particular, many charities are engaging in innovative work, some of which pushes at the boundaries of their charitable purposes. These charities should no longer look to the Commission to providing a ‘comfort’ to their proposals. They will be expected to seek their own legal advice if they have doubts about whether they should be undertaking a course of action or funding a piece of work. Where the proposed initiative is risky, it will also be up to the trustees to ensure, if required, they have carried out a proper risk assessment in reaching their decision.
There will, of course, be a few instances when a charity will still require the Commission’s consent or permission, for example where it wishes to make a change which is outside the trustees’ powers. The example quoted in the Commission’s publication is where a charity wishes to employ a trustee.
The Commission will expect any requests for a permission or consent to be directed through the Commission’s ‘First Contact’ team. Straight forward work will be dealt with by that team with only complex issues going through to the operational team.
This Large Charities team has been disbanded and the Commission has now reorganised into four operational teams, with each team specialising in particular areas of charitable activity.
Transparency and signposting
The Commission has plans to develop the information that’s made available about charities on its website and the red banner, which signals a charity is late in submitting its accounts, will remain. The Commission is promoting the merits of this feature as a preliminary piece of due diligence for funders.
Alongside these changes, the Commission has said that it will signpost charities to other organisations, including membership bodies, who can better assist charities with specific advice and guidance. This aspiration isn’t new, as the Commission’s website already has a list of useful organisations. However, the emphasis is now on charities supplementing the Commission’s online general guidance by seeking specialist advice and support – not from the Commission – but instead from an infrastructure, umbrella or membership body or, if necessary, from a lawyer.
Prevention rather than compliance?
No discussion of regulation would be complete without looking at the Commission’s compliance or investigatory role. Here the Commission has signalled that in deciding whether to engage in an issue it will look at whether it needs to be involved (for example whether the issue is within the Commission’s remit), as well as the nature and level of the risk involved. Whilst the regulator will continue to deal with serious abuse and non-compliance, it has signalled that, in future, it will only use its formal investigatory powers, including opening a statutory inquiry, in a limited number of cases. It will instead “place an emphasis on preventing problems” by identifying risks early and by providing web-based guidance.
No doubt there will be some tweaks and tests as the Commission’s new approach beds in. I also suspect a number of wrinkles will need ironing out over time, and it will be interesting to see how the Commission keeps abreast of issues affecting charities. For now though, trustees should simply ‘get on with it’ so that they benefit their organisation and its work.
This post is based on a longer article which first appeared in the March edition of Trust and Foundations News.