DCH 337 CLA Report comparing Charity
Commission with other regulators
Report on the Legal Structure,
Powers and Accountability of the proposed Charity Commission and
other regulatory bodies
Prepared for the Charity
Law Association
Dr Julia Black
London School of Economics
and Political Science
16th July
2004
(c) Julia Black
Contents
Summary and Comparative Table
3
Part 1 The Charity Commission
8
Part 2 The Office of the Scottish
Charities Regulator 23
Part 3 The Financial Services Authority
39
Part 4 The Office of Fair Trading
59
Part 5 Benchmarking against the Better
Regulation 80
Task Force's Recommendations for Independent
Regulators
Summary
This Report was compiled on the request
of the Charity Law Association, which sought information on the
legal structure, powers and accountability arrangements of three
other regulators in order to compare them with those for the proposed
Charity Commission as set out in the draft Charities Bill.
The three regulators examined are the
proposed Office of the Scottish Charities Regulator (OSCR), the
Financial Services Authority (FSA) and the Office of Fair Trading
(OFT).
With respect to each regulator, the
following issues are addressed:
- Legal status of the body
- Board structure and appointments
- Objectives, functions and duties
of the body
- Main powers, including powers of
information gathering and enforcement
- Appeals
- Accountability
The Report aims to provide sufficient
detail on these issues for the broad parameters of the governance
structures, powers and accountability arrangements of each regulator
to be understood; it does not however aim to provide an exhaustive
account of these issues, and should not be taken as constituting
legal advice.
The bodies are markedly different in
the nature and scope of their responsibilities and functions,
but exhibit some common characteristics in their governance arrangements,
powers of investigation and enforcement, and accountability arrangements.
The following table provides a summary
comparison of these four regulators with respect to the issues
identified above. The table should be read in conjunction with
the more detailed accounts of each regulatory body set out in
the Report.
Table 1: Summary and Comparative
Table of Regulatory Bodies
Regulator
Proposed or Current Legal Structure, Powers and Accountability
|
Charity Commission
|
OSCR
|
FSA
|
OFT
|
Board
| Appointed by Secretary of State
| Yes
| Yes
| Yes
| Yes
|
| Majority non-executives
| Not specified
(yes, in practice)
| Not specified
| Yes
| Yes, in practice
|
| Chair and CE split
| Yes
| Yes
| In practice since 2003
| Yes
|
Staff
| Civil Servants; numbers, terms and remuneration approved by ministers
| Yes
| Yes
| No
| Yes
|
Statements of Objectives / functions / duties
| Duty to advise ministers
| Yes
| No
| No
| Yes
|
| Requirement to use resources efficiently and effectively
| Yes
| No
| Yes
| Yes
|
| Requirement to have regard to principles of good corporate governance
| Yes
| No
| Yes
| Yes
|
| Requirement to have regard to principles relating to public bodies
| No
| No
| No
| Yes
|
Powers to make rules, give guidance etc
| Rule making powers
| No
| No
| Yes, extensive
| No
|
| Powers to give general guidance
| Yes
| Yes
| Yes
| Yes
|
| Powers to give individual directions / orders
| Yes
| Yes
| Yes
| Yes
|
| Powers to grant waivers / excusatory powers
| Yes
| Yes
| Yes
| Yes
|
Powers of investigation and information gathering
| Powers to require documents, information, explanations; offence for non-cooperation
| Yes
| Yes
| Yes
| Yes
|
| Powers to require persons to attend to give evidence; offence for non-cooperation
| Yes
| Yes
| Yes
| Yes
|
| Powers to appoint independent examiners
| Yes
| Yes
| Yes
| limited
|
| Powers of entry without a warrant
| No
| No
| No
| Yes
|
| Powers of entry with a warrant
| Yes
| No
| Yes, by police
| Yes
|
| Powers of surveillance
| No
| No
| No
| Yes, re: cartel offence
|
Enforcement powers
| Powers to 'name and shame'
| No
(though in practice publishing of inquiry reports amounts to this)
| No
| Yes
| In effect, yes
|
| Powers with respect to property held by or on behalf of authorised persons
| Yes
| Yes
| Yes
| Yes
|
| Powers to impose orders preventing / requiring cessation of actions
| Yes
| Yes
| Yes
| Yes
|
| Powers to require restitution
| Yes
| Yes
| Yes
| No
|
| Powers to accept enforceable undertakings or no-action letters in lieu of enforcement or other action
| No
| No
| No
| Yes
|
| Powers to apply to the court for orders
| Yes
| Yes
| Yes
| Yes
|
| Powers to bring prosecutions
| No
| No
| Yes
| Yes
|
Appeals
| Internal review of decision
| Not required
| Yes, proposed in draft Bill
| Yes, in practice
| Yes, in practice
|
| Independent appeals tribunal
| Yes
| Yes
| Yes
| Yes, for competition regime
|
Accountability
| Annual report
| Yes
| Yes
| Yes
| Yes
|
| Public meeting on report
| Yes
| No
| Yes
| Yes
|
| Annual management plan
| No
| No
| Yes, in practice
| Yes
|
| Consultation requirements
| Yes, in specific instances
| Yes, in specific instances
| Yes
| Yes in specific instances; established practice of consultation
|
| Complaints processes
| None specified in Bill;
PCA
| None specified in Bill
| Required
Complaints Commissioner
| None specified in Acts;
PCA
|
| Statutory immunity of Board members from liability in damages
| No
| No
| Yes
| No
|
Part 1 The Charity Commission
1.1 Introduction
The draft Charities Bill follows the
report of the Strategy Unit, Private Action, Public Benefit,
published in September 2002. Its main proposals include the
introduction of a new definition of charities; a new legal form
for charities: charitable incorporated organisations; a new system
for regulating fundraising; and the establishment of a regulatory
body to regulate charities, the Charity Commission.
The draft Bill does not completely
replace previous legislation on charities. Rather it amends the
Charities Act 1993 in several important respects, and thus has
to be read alongside that Act. It transfers the existing powers
of the Charity Commissioners for England and Wales to the new
Charity Commission, and amends and enhances those powers. It
confers a new set of objectives, functions and duties on the Commission,
and introduces a new appeal tribunal.
This part of the report focuses on
the form, structure and accountability of the new Charity Commission,
and on the main changes which the draft Bill introduces to its
powers. It does not give a complete account of the powers which
are transferred to the Commission without amendment, and thus
should not be taken to be an exhaustive account of the powers
the new regulatory body will have. It does, however, seek to
highlight the principal changes to the Commission's powers, and
where relevant draws comparisons with the three other regulators
examined in this report: the Office of the Scottish Charities
Regulator (OSCR), the Financial Services Authority (FSA), and
the Office of Fair Trading (OFT).
1.2 Status
The draft Bill abolishes the office
of the Charity Commissioners for England and Wales, and transfers
their functions, property, rights and liabilities to the Charity
Commission. The Charity Commission is a body corporate established
by statute which exercises its functions on behalf of the Crown.
1.3 Board
The Commission will consist of Chairman
and 4-8 members appointed by Secretary of State for 5 year terms,
and may be reappointed. The chairman or members may resign during
their terms. They may be removed by the Secretary of State only
for incapacity and misbehaviour, in contrast with the far wider
grounds of dismissal in the Scottish Charities and Trustees (Investments)
Bill (draft Scottish Bill). The remuneration and allowances,
including pensions, of the chairman and members is to be determined
by the Secretary of State. The draft Bill provides that the current
Chief Charity Commissioner shall become chairman, and the current
Charity Commissioners become members of the Charity Commission.
Two of the members are to have at least
seven years legal experience under s71 Courts and Legal Services
Act 1990, and at least one member is to have knowledge of the
interests of persons in Wales and be appointed in consultation
with the Welsh National Assembly. That member may only be removed
for capacity or misbehaviour after consultation with the Assembly.
Members of the Westminster Parliament and the Northern Ireland
Assembly are disqualified from being members, but there is no
provision, in contrast to the draft Scottish Bill, that trustees
are so disqualified.
The Commission is to appoint a chief
executive, and may appoint other staff as it sees fit, although
numbers of staff must be approved by the Minister for the Civil
Service. The terms and conditions of the chief executive and
all staff are also subject to approval by Minister for the Civil
Service.
As with the OSCR, the
Charity Commission can determine its own internal procedures,
including quorum, provision is made for it to delegate its powers
to members and employees, and the validity of its acts are not
affected by any defects in procedure.
1.4 Objectives, functions
and duties
The Charity Commission has four statutory
objectives, five statutory functions and three 'general duties'.
This contrasts with the OSCR, which has no objectives or general
duties, and only three functions: to maintain a public register,
encourage compliance with the Act, and investigate and take action
with regards to any misconduct in the administration of charities.
The Commission's statutory objectives
are:
- Increasing public trust and confidence
in charities;
- Increasing compliance with charity
trustees with their legal obligations in exercising control and
management in the administration of their charities;
- Enabling and encouraging charities
to maximise their social and economic impact;
- Enhancing the accountability of
charities to donors, beneficiaries and the general public.
Its 'general functions' are:
- Determining whether institutions
are or are not charities;
- Encouraging and facilitating the
better administration of charities;
- Identifying or investigating apparent
misconduct or mismanagement in the administration of charities
and taking remedial or protective action in relation to such misconduct
or mismanagement;
- Obtaining, evaluating and disseminating
information with respect to the performance of the Commission's
functions or meeting any of its regulatory objectives (including
maintaining a public register of charities);
- Giving information or advice, or
making proposals, to Ministers relating to any of the Commission's
functions or meeting any of its regulatory objectives. This includes
complying, so far as is reasonably practicable, with any request
for information or advice on any matter relating to its functions.
The OFT is also under an obligation
to advise Ministers, although its remit extends to advising on
future and existing legislation, and to giving advice to any public
body. The OSCR and the OFT have no general statutory duty to
advise.
The Commission's 'general duties' in
performing its functions are:
- So far as is reasonably practicable,
to act in a way which is in compatible with its regulatory objectives
and which it considers to be most appropriate for the purpose
of meeting those objectives;
- To have regard to the need to use
its resources in the most efficient and economic way;
- To have regard to such generally
accepted principles of good corporate governance as it is reasonable
to regard as applicable to it.
These general duties are identical
to those imposed on the FSA. The OFT is also under an obligation
to have regard to accepted principles of good corporate governance,
and in addition to guidance on the governance of public bodies.
1.5 Powers
1.5.1 Admission
to charitable status and maintenance of a public register of charities
The draft Bill sets
out a two stage test for determining the application of charitable
status. A body may be registered as a charity if it pursues one
or more of a list of charitable purposes and provides a public
benefit. It is no longer the case that pursuit of some types
of purpose (eg education) is presumed to provide a public benefit.
A body which meets the statutory requirements
for a charity must be registered, unless it is exempt, has been
temporarily or permanently excluded by the Commission for the
need for registration, or does not meet the threshold test for
gross income level set out in the Act (which may be amended by
regulations). The Commission has the power to remove charities
when they cease to operate or when the Commission considers it
is no longer a charity. The Commission is also given powers to
require documents or information from charities applying to be
registered.
The Commission is also required to
maintain a public register of mergers of charities. The Commission
may determine procedures for notification of mergers. The effect
of registration is that any gift that is expressed as a gift to
the transferor, but which takes effect on or after the registered
termination date, shall be treated as a gift to the transferee
1.5.2 Powers with respect to the
administration of charities
1.5.2.1 Application cy-pres
of gifts
The Commission is given greater powers
with respect to the application cy-pres of gifts of unknown or
disclaiming donors. It is given a concurrent power with the court
to direct that property is to be treated as belonging to donors
who cannot be identified. It is also given the power, as is the
court, to make schemes for the application of property cy-pres
as Commission sees fit, in accordance with statutorily defined
criteria.
1.5.2.2 Remuneration of trustees
The Commission is given powers to give
orders permitting the remuneration of persons out of the funds
of a charity in circumstances which go beyond the conditions for
remuneration set out in the draft Bill. As noted below, it also
has the power to issue general guidance relating to agreements
on the provision of remuneration to which charity trustees must
have regard, and the power to order the repayment of money paid
under agreements in which the person being remunerated acted.
1.5.2.3 Transfer of property,
amendment of purposes and changes to powers and procedures of
unincorporated charities
Clause 30 replaces section 74 of the
Charities Act 1993, and deals with the provisions on transfer
of property, amendment of charitable purposes, amendments to the
powers of trustees and procedures for their administration into
separate sections. The Commission is given broadly similar powers
to supervise resolutions of small charities dealing with these
issues as the Charity Commissioners have under the Charities Act
1993. The provisions are applicable to all charities whose gross
income in the previous financial year did not exceed £10,000;
who hold no designated land, and who are not incorporated.
Transfer of property
Trustees may resolve, by two-thirds
majority of those voting, that all the property in the charity
be transferred to one or more registered charities (or charities
exempt from the registration requirement) where they consider
that the transfer would be expedient for furthering the purposes
of the charity, and where the objects of the charities to whom
the property is to be transferred are broad enough to encompass
those of the transferor.
Copies of the resolution must be sent
to the Charity Commission with a statement of reasons for passing
it. The resolution takes effect after 60 days unless the Commission
otherwise directs (or unless the time period is suspended for
more than 120 days in order for public notice to be given and
/ or further information or explanations to be given to the Commission,
in which case resolution treated as if never passed).
The Commission may direct trustees
to give public notice of the transfer, and the Commission must
take into account any representations received within 28 days
of public notice being given. The Commission may also seek further
information and explanations from trustees for reasons for transfer
and compliance with the section.
In order to facilitate the transfer
of property, the Commission has the power to make orders vesting
any property of the transferor charity in the transferee charity
or trustees or any person that they may nominate to hold the property
on trust for the charity, if requested to do so by the trustees
of the transferor charity.
Amending the purposes
Clause 31 inserts s.74B into the Charities
Act and provides that the Commission has the same powers with
respect to resolutions passed by the same class of charities which
replace the purposes of the charity.
Modifying powers and procedures
The draft Bill removes the need for
the Commission to be involved with respect to resolutions modifying
the powers of trustees or the procedures of small, unincorporated
charities.
1.5.2.4 Powers to spend capital
Under the Charities Act 1993 small
charities were freed from the restrictions on the expenditure
of capital under certain circumstances, but their resolutions
to this effect were supervised by the Charity Commissioners.
The draft Bill provides that small
charities, that is those with a gross income of less than £1,000
in the last financial year or endowment with a market value of
less than £10,000, may resolve to spend capital without involving
the Charity Commission.
However, the resolutions of larger
charities to spend capital will be supervised by the Charity Commission.
Clause 33 inserts section 75A into the Charities Act 1993. It
applies charities whose gross income in the last financial year
was over £1,000 but total market value of total endowment
fund is less than £10,000, and where capital of the endowment
fund consists entirely of property given under the will of an
individual or by an institution.
If the trustees are satisfied that
the purposes of the charity could be carried out more effectively
if the capital of the fund could be expended they may resolve
to spend the capital, subject to certain conditions. The resolution
must be sent to the Commission, and may not be implemented without
the Commission's agreement. The Commission may direct trustees
to give public notice of the transfer, and the Commission must
take into account any representations received within 28 days
of public notice being given. The Commission may also seek further
information and explanations from trustees for reasons for transfer
and compliance with the section.
The Commission must notify trustees
within 3 months of receipt of resolution of its decision. In
making its decision the Commission must take into account any
evidence as to the donor's wishes and changes in circumstances
surrounding the charity, and must not concur unless it is satisfied
its implementation would accord with the spirit of the gift and
the charity trustees have complied with their statutory obligations
under the section.
The Commission is given the same powers
over capital expenditure with respect to special trusts where
the market value of the endowment is over £10,000.
1.5.2.5 Existing powers extended
to exempt charities
The regulatory regime for exempt charities
has been enhanced, and the Commission is give greater powers with
respect to these charities. These include:
- the power to require the charity's
name to be changed where the name is the same as or too similar
to another charity's, or where the Commission considers that the
name is likely to mislead the public as to the purposes of the
charity or its activities;
- power to institute inquiries and
call for documents and records (see further below);
- exercising concurrent jurisdiction
with the court with respect to establishing a scheme for the administration
of a charity, appointing, discharging or removing a trustee or
removing an officer or employee; or vesting or transferring property
- Power to act for the protection
of charities (see further below)
- Power to give directions with respect
to dormant bank accounts (the Commission may direct the money
to be paid to one or more charities whose purposes are the same
as those of the relevant charity, in so far as those purposes
are known to them, as long as the receiving charities agree)
- Power to order disqualified person
to repay sums received from a charity
- Authorisation of legal proceedings
relating to a charity (must not be given where the case could
be dealt by the Commissioners under the Act without special reasons)
1.5.3 Powers to issue guidance
The Commission is given specific powers
to issue guidance in the draft Bill in a number of circumstances.
1.5.3.1 Individual Guidance
Under clause 20 the Commission has
the power to give its opinion or advice to specified persons on
written application by them relating to performance of any duties
of the person in relation to the charity concerned; or otherwise
relating to the proper administration of the charity. The draft
Bill extends the current power in the Charities Act to enable
the Commission to give advice or opinions to officers, agents
or employees of the charity, as well as trustees. As under the
Charities Act 1993, a safe harbour is provided for those who act
in accordance with the opinion or advice given: they
shall be taken to be acting in accordance
with his trust or the trusts of the charity unless the applicant
knows or has reasonable cause to suspect the opinion or advice
was given in ignorance of material facts, or where a decision
of the court has been obtained on the matter or proceedings are
pending to obtain one.
1.5.3.2
General guidance
Clause 20 also confers on the Commission
a power to give guidance to charities generally, a class of charities
or a charity in particular, to encourage and facilitate the better
administration of charities. The Guidance may take such a form
and be made in such a manner as the Commission considers appropriate.
There is no equivalent safe harbour provision to that provided
with respect to individual guidance, however.
Further, under clause 27 (inserting
s.73B), the Commission has the power to give guidance on the issue
of remuneration of trustees, which trustees must have regard to
before entering into any agreement to remunerate a trustee or
those connected to a trustee.
The Commission is not placed under
any duty to consult prior to issuing guidance under clauses 20
or 27.
1.5.4 Powers of information gathering
and investigations
1.5.4.1 Investigations and
powers to request information
The Charity Act 1993 conferred on the
Charity Commissioners a general power to institute inquiries either
generally or for a particular purpose with regard to charities
or a particular class of charities. These powers are extended
to exempt charities under the draft Bill if the charity's principal
regulator so requests. Inquiries may be conducted by the Commission
or they may appoint another person to conduct them. The Charities
Act also provides that the Commission may appoint an independent
examiner to audit the charity's accounts, who has access to books,
documents and records of the charity and is entitled to require
explanations from past or present trustees, officers or employees.
The Charities Act 1993 requires the Commission to publish a report
on its inquiries, but there are no equivalent provisions to those
contained in the draft Scottish Bill imposing requirements to
anonymise the reports.
The draft Bill also extends to exempt
charities the general powers of the Commission to require any
person to furnish it with accounts, written statements or documents,
or copies or extracts of documents, with respect to any matter
in question in the inquiry, or to attend at a specified time and
place to give evidence or produce documents. Under the Charities
Act 1993 evidence may be given on oath or verified by statutory
declaration. The provisions of the Charities Act which require
the Commission to publish a report of the inquiry are maintained.
It continues to be an offence to supply the Commission with information
which is false or misleading in a material particular or to wilfully
alter, suppress, conceal or destroy documents.
Finally, auditors of charities are
placed under an obligation to report matters to the Commission
under cl 23 (new s.44A and s.69A)
1.5.4.2 Powers to enter premises
The Commission is given new powers
to enter premises on obtaining a warrant. Any employee of the
Commission may obtain a warrant from a magistrate to enter premises.
Three conditions must be satisfied before the warrant can be
issued:
- an inquiry has been instituted
under s.8
- there is on the premises any document
or information relevant to the inquiry which the Commission could
require to be furnished under section 9 of the Charities Act 1993
- that if Commission were to make
an order requiring it the order would not be complied with or
the document or information would be removed, tampered with, concealed
or destroyed
Note that the applicant has to show
that the document or information is on the premises, not
that it has reasonable grounds for suspecting or believing it
is. This is a higher threshold than is required for obtaining
a warrant for entry either by the FSA (reasonable grounds for
believing) or the OFT (reasonable grounds for suspecting). There
is no need to give notice prior to obtaining a warrant.
The warrant may authorise specified
persons to accompany the named official, thus paralleling the
amendments to the warrant provisions made in the Enterprise Act
2002 with respect to the OFT. Warrants may authorise those named
in it, amongst other things, to seizing documents or take copies
or extracts of documents, seize electronic equipment, gain explanations
from individuals of documents or information or state where they
may be found, and require any person to assist him in taking extracts
or making copies. The person authorised in the warrant must produce
a document on entry to the premises stating the subject matter
and purposes of the investigation and showing he is an employee
of the Commission. He must make a written record of search required,
which is to be kept as long as the Commission thinks necessary.
It is an offence intentionally to obstruct the exercise of any
rights conferred in the warrant.
1.5.5 Enforcement / Remedial actions
1.5.5.1 Powers to act for
the protection of charities
Under the Charities Act 1993 the Commission
has powers to take various actions for the protection of charities.
These are more extensive than those to be given to the OSCR under
the draft Scottish Bill. Whilst the OSCR can issue similar orders
or directions, in most cases the effect of these expires after
six months, and they must be confirmed by the court if they are
to have continuing effect.
Section 18 of the 1993 Act provides
that where the Commission has instituted an inquiry under section
8 and is satisfied that there is or has been any misconduct or
mismanagement in the administration of charities, or that it is
necessary or desirable to act for the purposes of protecting the
property of the charity or securing its proper application, the
Commission may take various actions. These include the following:
- suspend any trustee, officer, agent
or employee of the charity,
- appoint additional trustees,
- make orders vesting the property
of the charity in the official custodian,
- impose restrictions on the transfer
of property and on transactions,
- order debtors not to repay liabilities
without consent of the Commissioners,
- appoint managers and receivers,
or
- establish a scheme for the administration
of the charity.
The draft Bill in addition gives the
Commission the power to give specific directions for protection
of charities. The Commission will have the power to order charity
trustees, any trustee of the charity, any officer or employee
of the charity (or the charity itself if a body corporate) to
take any action specified in the order which the Commission considers
expedient in the interests of the charity. It may order things
to be done that would not otherwise be within the powers of the
charity; however it may not order things to be done which are
expressly prohibited by Act of Parliament or by the trusts of
the charity or which are inconsistent with its purpose.
Under clause 17 the Commission will
have the power to direct application of charity property where
the Commission is satisfied that those in control or possession
of any property held by or on trust for the charity is or are
unwilling to apply it for the purposes of the charity and that
it is necessary or desirable to make an order to ensure the proper
application of the property. Again, it may order things to be
done that not otherwise within the powers of the charity; however
the Commission may not order things to be done which are expressly
prohibited by Act of Parliament or by the trusts of the charity
or which are inconsistent with its purpose.
1.5.5.2 Publicity of enforcement
/ remedial actions
The draft Bill amends the publication
requirements relating to orders establishing schemes for the administration
of charities or the appointment, removal or discharge of trustees.
It provides that prior to making such orders the Commission must
give public notice of its proposals inviting representations,
unless it considers it is unnecessary to do so, but the legislation
no longer specifies the timing of such a notice. Those who are
to be removed from office without their consent must be given
one month's notice and allowed to make representations within
a specified time.
The draft Bill also amends the publicity
requirements for orders subject to appeal. On making such an
order it must either give public notice of the order or give notice
to every person who has a right of appeal, as at present, unless
it considers it unnecessary to do so. The draft Bill specifies
the contents of the notice and the form in which it may be given.
1.5.5.3 Orders to repay moneys
under remuneration agreements
The Commission will have the power
to order repayment of whole or part of remuneration received (or
monetary value of any benefit in kind received) where the person
was disqualified from receiving it on the grounds that they participated
in the decision to form the agreement. The order is subject
to appeal to the Tribunal, which may dismiss the appeal, quash
order, or substitute the order for another kind that the Commission
could make.
1.6 Other powers
1.6.1 Excusatory powers
Under clause 29, the Commission has
the power to relieve auditors, trustees or independent examiners
of charity accounts from liability in circumstances similar to
those in which a court may relieve company directors of liability.
The provision applies where the Commission considers that such
a person is or may be personally liable for breach of trust or
breach of duty, but that he has acted honestly and reasonably
and ought fairly to be excused, the Commission may make an order
relieving him from such liability on such terms as it sees fit.
The provision does not apply to personal contractual liabilities,
and is retrospective.
1.6.2 Powers with respect to incorporated
charitable organisations (CIOs)
The Bill provides for the creation
of charitable incorporated companies. In contrast to the draft
Scottish Bill, the draft Charity Bill provides a number of powers
to the Commission with respect to CIOs.
1.6.2.1 Approval and entry
on the register
The Commission is to consider all applications
for CIOs to be constituted and for its registration on the charity
register. The Secretary of State has the power to make regulations
setting out the information to be provided, and the Commission
may require documents or information for the purposes of the application.
The Commission must refuse to register
the charity if it is not satisfied that the CIO would be a charity
at the time of registration, or it has not complied with statutory
provisions relating to its constitution. It may refuse to register
it if it considers its name is too similar to another charity's,
or is likely to mislead the public as to the purposes of the charity
or the activities it carries out.
1.6.2.2 Approval of certain
actions by CIOs
The Commission also has to approve
the following:
- applications for conversion to
CIO status by charitable companies and registered societies, which
may be refused on the same grounds as applications for initial
constitution
- amalgamations of CIOs, which are
subject to requirements to give notice of the resolution on amalgamation
and for the Commission to take into account any representations
made. Amalgamations may be refused on the same grounds as the
Commission may refuse an application for constitution of a CIO,
and additionally if it considers that there is a serious risk
that the new CIO would be unable properly to fulfil its purposes;
- transfers of undertakings of one
CIO to another CIO; these may not occur without the Commission's
concurrence, and requirements as to notice and taking into account
representations are made. The Commission may refuse to approve
an amalgamation if it considers that there is a serious risk that
the transferee CIO would be unable properly to pursue the purposes
of the transferor CIO.
The Commission also has power to supervise
amendments to the constitutions of CIOs. All amendments must
be sent to the Commission, and do not take effect until they have
been registered (unless they relate to a change of address of
the principal office). The Commission must refuse to register
any amendment which it considers the amendment to be outside the
powers of the CIO, for example because it ceases to be a charity
or does not comply with the Act, or if the amendment relates to
a change of name and the Commission could refuse on the grounds
relating to initial applications. Refusals to register an amendment
are subject to appeal.
The Secretary of State is given powers
to make regulations concerning the dissolution and winding up
of CIOs, and any other matters regarding their administration
or procedures.
1.7 Appeals
1.7.1 Charity Appeal Tribunal: constitution
and powers
The draft Bill establishes a Charity
Appeal Tribunal. The Lord Chancellor appoints the President,
who is required to have seven years' general legal experience
under s.71 of the Courts and Legal Services Act. The Lord Chancellor
may appoint other members who may be legal members or ordinary
members, and set their terms and conditions. Legal members are
required to have seven years' general legal experience, and ordinary
members are those who appear to the Lord Chancellor to have the
relevant knowledge or experience relating to charities. The
Lord Chancellor may appoint a deputy President, who must be a
legal member. The President, Deputy President and members may
resign or be removed for incapacity or misbehaviour.
The functions of the Tribunal are to
be exercised by panels of three members, constituted according
to the statutory provisions. The Tribunal has the power to consider
any issue appealed to it afresh and may accept new evidence.
The rules of procedure of the Tribunal are to be determined by
Lord Chancellor and made by statutory instrument subject to the
negative resolution procedure. The draft Bill confers powers
on the Lord Chancellor to delegate the formation of rules on specific
issues, including disclosure of evidence, admission of the public
to proceedings, and awards of costs, to the President or legal
member of the Tribunal.
Rights of appeal lie, in most cases,
to the charity trustees and any person affected by the decision.
The Bill also confers the facility for the Attorney General to
intervene in proceedings and to seek leave to appeal even when
not party to proceedings.
The Tribunal has the power to dismiss
the appeal, quash the decision or direct the Commission to take
action specified in the direction, or give any direction the Commission
could have given. Specific powers vary slightly with the decision
being appealed.
Appeal from the Tribunal lies to the
High Court on a point of law.
1.7.2 Decisions that may be appealed
The following decisions of the Commission
may be appealed:
- decisions to register or not register
a charity or remove or not remove from register
- directions to change a charity's
name
- decision to institute a general
inquiry (may only be brought on the ground that the body is not
a charity)
- orders made under ss.16-19B (scheme
for administration of charity, for alteration or application of
charity property, removal of trustees, officers or employees,
orders relating to the protection of property)
- investigation of accounts (only
on the grounds the institution is not a charity)
- decisions to waive or not waive
disqualification provisions
- orders relating to acting as a
trustee when disqualified
1.8 Accountability
1.8.1 Ministers
Ministers appoint the Board and determine
the terms and conditions of their appointment, including remuneration,
but have limited powers to dismiss Board members.
The Commission is obliged to advise
Ministers, but Ministers have no powers to direct the Commission
to act in particular instances. Ministers do have powers throughout
the Bill to make regulations which the Commission will have to
enforce.
The Commission is required to compile
an annual report to be given to the Secretary of State. The report
is required to comment on the Commission's discharge of its functions,
the extent to which its regulatory objectives have been met and
the management of its affairs during that year.
1.8.2 Parliament
The Commission is required to lay a
copy of its annual report before Parliament and arrange for it
to be published. Its reports and activities are subject to scrutiny
by Select Committees in the usual way.
The Commission's expenses are to be
paid out of money provided by Parliament.
1.8.3 Other stakeholders
The Commission is required to publish
its annual report, and to hold an annual public meeting within
3 months of sending the report to the Secretary of State to enable
the annual report to be discussed. It must give adequate notice
of the meeting, and allow discussion of the report and questions
to be put to the commission. A similar requirement to hold a
public meeting is placed on the FSA and the OFT, but is not placed
on the OSCR.
The Commission is not placed under
a statutory duty to consult when developing guidance under cl
20 or 27 relating to the administration of charities and trustees'
remuneration. This contrasts with the OSCR which is placed under
a statutory consultation requirement in exercising its powers
to give guidance with respect to the development of the 'charity
test'.
There are, however, various provisions
relating to resolutions by charities, for example amendments to
purposes or transfers of property, where the Commission may require
the charity to issue a public notice of the resolution and the
Commission is required to take into account any representations
made in deciding whether or not to consent to the resolution.
The Commission must also give public notice of its proposals
for orders establishing schemes for the administration of charities
or the appointment, removal or discharge of trustees, inviting
representations, and public notice of orders which are subject
to appeal, unless in either case it considers it unnecessary
to do so.
1.8.4 Complaints
The Commission will be subject to the
Parliamentary Commissioner for Administration.
1.8.5 The courts
The Commission will be subject to the
normal principles of judicial review.
Part 2 Office of
the Scottish Charities Regulator (OSCR)
2.1 Introduction
At present, Scotland
has no equivalent of the Charity Commission for England and Wales,
and there is no single register or regulatory body for charities.
Charity status is currently awarded by the Inland Revenue to
organisations who meet the definition for tax purposes. The draft
Bill establishes a regulator for Scottish charities, and sets
out a new set of criteria for obtaining charitable status. Although
charities are a devolved matter, because of the Inland Revenue's
obligations to apply common tax rules across the UK, including
charities, the criteria for obtaining charitable status are akin
to those set out in the draft Charities Bill in the Westminster
Parliament, although it is recognized that the definitions may
diverge in the course of the passage of the two Bills through
the Parliaments, and in the course of the interpretation and application
of the statutory criteria by the two charity regulators.
2.2 Status
The OSCR is established
as a body corporate under clause 1 of the draft Charities and
Trustee Investments (Scotland) Bill (the draft Bill). The accompanying
consultation paper makes it clear that the OSCR will be a non-departmental
public body, operating on behalf of the Crown and part of the
Scottish administration.
2.3 Board
Schedule 1 of the draft
Bill sets out the provisions on Board membership. The Board is
to have between 4-8 members, appointed by Scottish Ministers.
Those appointed must have such knowledge and skills as appear
to Ministers to be relevant to the functions of the OSCR. Certain
people are disqualified from being members of the Board, including
members of the Scottish Executive and the Parliaments of Scotland,
Westminster and the EU, and charity stewards. There is no maximum
or minimum term of appointment specified, and members may resign
during the period of their appointment.
It is notable that
the Scottish Ministers have far wider powers of dismissal of Board
members than Ministers do for the Charities Commission, or indeed
for the OFT or FSA. There are no restrictions that Board members
may only be dismissed for misbehaviour or incapacity. The draft
Bill gives Ministers the power to determine all terms and conditions
of service, including the terms on which Board members vacate
office (Schedule 1 para 2(1)). The draft Bill also provides
that Ministers may remove Board members from office if they become
bankrupt, fail to attend meetings for more than 6 months without
the OSCR's permission, are unable to discharge their functions
or are unsuitable as a Board member, and 'it is necessary or expedient
to do so in connection with the management of affairs of the OSCR'.
The Chair and Deputy
Chair of the OSCR are appointed by ministers. The OSCR must appoint
a chief executive and may appoint other employees as it sees fit;
the terms and conditions of both the chief executive and other
members of staff are subject to approval by ministers. As with
most regulatory agencies, the OSCR can determine its own internal
procedures, including quorum, provision is made for it to delegate
its powers to members and employees, and the validity of its acts
are not affected by any defects in procedure.
2.4 Objectives
and functions
Clause 1(2) of the
draft Bill provides that OSCR's general functions are:
- to keep a public
register of charities;
- to encourage and
facilitate compliance by charities with the provisions of the
Act,
- to identify and
investigate apparent misconduct in the administration of charities
and to take remedial or protective action in relation to such
misconduct.
The draft Bill sets
out no separate objectives, nor does it require the OSCR to have
regard to any principles of good regulation or corporate governance.
2.5 Powers
The OSCR has four main
sets of powers. These are:
- to govern admission
to charitable status and maintain a public register of charities;
- powers with respect
to the day to day administration of charities, including approval
of certain actions by charities, and ensuring that charity stewards
and trustees of public charities act in accordance with their
duties introduced by the draft Bill;
- powers of investigation
and information gathering
- powers to give
orders or directions. Most directions are valid for up to six
months only, after which time they must be confirmed by the court
in order to have continuing effect.
It also has limited
powers under the largely self regulating scheme applying to fundraising
which is introduced in the draft Bill.
2.5.1 Admission
to charitable status and maintenance of a public register of charities
The draft Bill sets
out a two stage 'charity test' for determining the application
of charitable status. A body may be registered as a charity if
it pursues a charitable purpose and provides a public benefit.
It is no longer the case that pursuit of some types of purpose
(eg education) is presumed to provide a public benefit.
The OSCR is responsible
for interpreting and applying the test, and must, after consultation
with those it thinks fit, issue guidance on its interpretation.
The OSCR is also required
to keep a public register of charities, which it must keep open
for public inspection. The draft Bill provides for the OSCR to
be provided with specified details of the charity, including its
name, purposes and principal office or name of a charity steward,
and confers on Ministers powers to extend the information that
may be included. In addition, the OSCR has the power to demand
from any
charity any document or type of document, or copies or extracts
of documents, or other information or explanation which it requires
in relation to the charity's entry in the Register.
The OSCR has the power
to remove bodies from the charitable register where it no longer
meets the charity test, and in certain other circumstances (see
below). It is also obliged to remove names from the register
when asked.
2.5.2 Powers with
respect to the administration of charities
The OSCR has the following
sets of powers and functions with respect to supervising the day
to day running of charities and facilitating their reorganisation.
2.5.2.1 Power
to permit or prohibit certain actions by charities
(i) Name changes
All charities must
apply to the OSCR for approval if they wish to change their name.
The OSCR may refuse its consent if the proposed name is objectionable
or likely to cause confusion. A charity may also apply to the
OSCR to review names if it the applicant considers that another
charity's name is too similar to its own. The OSCR may as a result
of such a review require one or both charities to change their
names. Failure to comply will result in removal from the register.
(ii) Amendments
to the purposes of the charity, amalgamations and dissolution
The OSCR's consent,
which may have conditions attached to it, is necessary before
a charity may amend its purposes, amalgamate with another charity,
wind itself up or dissolve itself, or apply to the court with
respect to any of these actions.
The charity must give
28 days notice to the OSCR of the proposed action. With respects
to notices relating to amendments to the charity's purposes, OSCR's
consent has to be obtained, and there is no set time period in
which OSRC has to give that consent.
In all other cases,
the OSCR may, within 14 days of the date the notice was given,
give a direction not to take action for up to six months. Where
it does make a direction it must then make inquiries and either
give its consent, which may be subject to conditions, or refuse
its consent. If the OSRC does not make a direction, it is to
be taken to have consented. There is a right of appeal against
refusals.
2.5.2.2 Powers
of continued supervision of charities removed from the register
The OSCR
has continuing powers to supervise the application of the property
or income of such charities which had been acquired prior to its
removal. The property must be applied in accordance
with its purposes as set out in its entry in the Register immediately
before its removal. Where the body is to be wound up or dissolved,
the OSCR may direct the body to transfer the property and income
to a charity which has purposes closely resembling the purposes
referred to in that subsection, and which has intimated that it
is prepared to receive the property and income. The transferee
may then use the property as it sees fit.
2.5.2.3 Powers
with respect to dormant accounts |