Joint Committee on the Draft Charities Bill

Joint Committee on the Draft Charities Bill Written Evidence

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

16^th 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

The OSCR has powers to apply the money held in dormant accounts. Where a financial institution informs the OSCR that it is holding money in an account for a charity which has been dormant for five years, and after reasonable inquiries the OSCR is unable to locate any person concerned in the management or control of the body, it has the power to apply the money held in the account. It must transfer the money either to such a charity or charities as it may determine having regard to the purposes of the charity, or if it is unable to ascertain those purposes, to such charity as it considers appropriate. The transferee may use the money as it sees fit.

The OSCR's powers over the money cease if it is informed by the financial institution that the accounts have become active, or if it becomes aware of the identity of a person concerned in the management or control of the relevant body and informs the relevant financial institution of that fact. Ministers are given the power to make regulations relating to the procedures that the OSCR must follow and as to any sums it may retain in respect of its expenses.

2.5.2.4 Reorganisation of Charities

OSCR's powers with respect to the reorganisation of charities are set out in Part 2 of the draft Bill, and consist principally of designing a scheme for reorganisation, and applying to court for its approval. In contrast to the Charity Commission the OSCR has no powers to approve reorganisations itself but must submit a scheme to the court for approval. Charities and public trusts may apply directly to court instead of applying to the OSCR.

In circumstances in which the 'reorganisation conditions' are met, the OSCR may apply to the court for approval of a reorganisation scheme.

The 'reorganisation conditions' are:

(a) that some or all of the purposes of the charity or trust:

have been fulfilled as far as possible or adequately provided for by other means,

can no longer be given effect to (whether or not in accordance with the directions or spirit of its constitution),

have ceased to be charitable purposes,

have ceased in any other way to provide a suitable and effective method of using its property, having regard to the spirit of its constitution; or

(b) that the purposes of the charity or trust provide a use for only part of its property.

A 'reorganisation scheme' is a scheme for:

(a) variation of the constitution of the charity or trust, whether or not in relation to its purposes,

(b) transfer of the property of the charity or trust (after satisfaction of any

liabilities) to another charity or public trust, whether or not involving a change to the purposes of the other charity or trust, or

Charity stewards and public trustees may also apply directly to the court where the reorganization conditions are met and the charity or public trust does not have the power to amend its constitution. The OSCR must be notified, and has a right to appear in proceedings. In either case, the court may approve the scheme if the conditions have been met, and it considers that a reorganisation scheme proposed by the appropriate persons will enable the resources of the charity or trust to be applied to better effect consistently with the spirit of its constitution, having regard to changes in social and economic conditions since it was constituted.

Small charities and public trusts (to be defined in regulations) will be given the power in the same circumstances to pass a resolution to take the same types of actions as set out in a reorganization scheme (termed 'reorganisation steps') as long as taking such action does not result in an 'unreasonable departure from the constitution'. The draft Bill imposes consultation requirements on stewards and trustees with respect to such resolutions, to be detailed in regulations. It also requires them to notify the OSCR, which has the power to direct that the reorganization should not proceed, giving reasons for its direction. Appeal lies to the sheriff.

2.5.2.5 Transfer schemes

In contrast to the Charity Commission, the OSCR does not have the power to approve transfer schemes itself or order property to be vested or transferred. Rather, under clause 31, the Court of Session may, on an application by the OSCR, approve a scheme prepared by the OSCR in accordance with regulations made by the Scottish Ministers for the transfer of assets from a charity, or body which has been representing itself as a charity, to another charity if certain conditions are met.

The court may approve a scheme in relation to a charity only if it is satisfied that:

there is or has been misconduct in the administration of the charity,

it is necessary or desirable to act for the purpose of protecting the property of the charity or securing a proper application of such property for its purposes, and

the charity's purposes would be better achieved by transferring its assets to

another charity.

The court may approve a scheme in relation to a body which is or has been representing

itself as a charity only if it is satisfied that-

the body is or has been representing itself as a charity, and

the transfer provided for by the scheme is reasonable.

In either case the court may approve a scheme subject to modifications.

2.5.2.6 Powers to grant waivers

The OSCR has the power to waive the disqualification provisions. Under clause 51, certain persons are disqualified from being charity stewards, including those removed from office by the Charity Commission and those who are subject to disqualification orders under the Company Directors Disqualification Act 1986. The OSCR has the power to waive the disqualification, subject only to the provision that waiver does not prejudice the operation of the Company Directors Disqualification Act 1986.

2.5.3 Powers of investigation and information gathering

The OSCR has quite extensive powers to gather information and conduct investigations into the running of charities.

2.5.3.1 General powers of inquiry and information seeking

The OSCR has a general power to make inquiries into the running of a charity, for which it has wide powers to request information. Under clause 24 the OSCR may at any time make inquiries, either generally or for particular purposes, with regard to a charity or any other body which appears to it to represent itself as a charity or to a person which appears to act or represent itself as acting its behalf.

In making those inquiries, it has a wide power to seek information. Under clause 23 it may by notice require any person to provide any document or type of document, or copies or extracts, in that person's possession or control, or any information or explanation which the OSCR considers necessary for the purposes of its inquiries. Clause 23 provides that the OSCR must not disclose any document, information or explanation provided in response to such a requirement under except for the purposes of the inquiries in connection with which the requirement was made. However, under clause 20 has the power to disclose information (presumably subject to clause 23) to a wide range of public bodies, including Ministers, local authorities and 'any other public body or public office holder'.

In contrast to the FSA, OFT and the draft Charities Bill, the OSCR may also pay to any person a sum in respect of expenses reasonably incurred by the person in complying with a requirement to provide information (the Charity Commission may pay expenses for attendance to give evidence or documents). Failure without reasonable excuse to comply with a requirement is an offence.

2.5.3.2 Power to require information with respect to entry on the register

The OSCR may by notice require any charity to provide any document or type of document, or copies or extracts, or other information or explanation which the OSCR in relation to the charity's entry in the Register, although legal professional privilege is maintained.

2.5.3.3 Power to appoint a qualified person to prepare a statement of account

Under cl 36 charities are required to maintain properly audited accounts, which must be submitted to the OSCR. Where a charity fails to comply with this obligation, the OSCR may, after giving notice, appoint a suitably qualified person ('an appointed person') to prepare such a statement of account. This power is broadly similar to that conferred on the Charity Commission under the Charities Act 1993.

An appointed person is entitled, on giving prior notice, to enter the premises of the charity at all reasonable times; to have access to, and take possession of, any document appearing to the appointed person to relate to the financial affairs of the charity; to require any charity steward, or agent or employee, of the charity to give the person such assistance, information or explanation as the appointed person may reasonably require. The charity stewards of the charity are personally liable jointly and severally for the expenses of the appointed person in performing these functions. The appointed person must then send to OSCR the statement of account prepared and submit a report on the affairs and accounting records of the charity, and send copies to the charity stewards. Failure, without reasonable excuse, to comply with a requirement of an appointed person is an offence.

2.5.3.4 Offence of providing false or misleading information

The draft Bill bolsters the OSCR's information gathering powers by making it an offence not to provide information, or to provide information whish is false or misleading in material respect.

Under clause 22 it is an offence for a person to provide any information or explanation to OSCR or any other person if the person providing the information or explanation knows it to be, or is reckless as to whether it is, false or misleading in a material respect, and the information or explanation is provided in purported compliance with a requirement under the Act or in other circumstances in which the person providing it knows, or could reasonably be expected to know, that it would be provided for the OSCR for its use, or used by the OSCR, in connection with the exercise of its functions. It is also an offence for a person deliberately to alter, suppress, conceal or destroy any document which the person is, or which that person knows any other person is, required to provide to OSCR.

2.5.4 Enforcement powers

The OSCR has two main sets of enforcement powers. The first applies where the charity no longer meets the charity test; the second set of powers applies following inquiries made by the OSCR.

2.5.4.1 Powers of OSCR where charity no longer meets charity test

Under clause 26, where OSCR is satisfied, as a result of inquiries made under its general power of inquiries, that a charity no longer meets the charity test it must:

direct the charity to take such steps as OSCR considers necessary for the purposes of meeting the charity test;

apply to the court for approval under section 55 of a reorganisation scheme in relation to the charity's constitution; or

remove the charity from the Register.

If the charity fails to comply with the direction given, the OSCR must remove it from the register, and must notify the body of its removal, with reasons, within seven days.

2.5.4.2 Powers of the OSCR following inquiries

Clause 27 gives the OSCR powers to act in specified circumstances, and in most cases the OSCR has to have its enforcement actions confirmed by the court after 6 months for the actions to have continuing effect.

Where the OSCR is satisfied, as a result of inquiries made, that there has been misconduct in the administration of a charity, or it is necessary or desirable to act for the purposes of protecting the property of a charity or securing a proper application of such property for its purposes, it may:

by notice, suspend any charity steward, or agent or employee, of the charity

who appears to it to have been responsible for or privy to the misconduct; to have facilitated or contributed that misconduct; or to be unable or unfit to perform that person's functions in relation to the property of the charity;

give a direction restricting the transactions which may be entered into, or the

nature or amount of the payments which may be made, in the administration of the

charity or body without its consent.

direct any relevant financial institution or other person holding property on

behalf of the charity or body or of any person concerned in its management or control

not to part with the property without its consent.

Where the OSCR is satisfied, as a result of inquiries, that a body which is not a charity is being or has been represented as a charity, it may:

direct the body representing itself as a charity or the person representing the body as a charity, to stop doing so.

give a direction restricting the transactions which may be entered into, or the

nature or amount of the payments which may be made, in the administration of the

charity or body without its consent.

direct any relevant financial institution or other person holding property on

behalf of the charity or body or of any person concerned in its management or control

not to part with the property without its consent.

Where OSCR is satisfied, as a result of inquiries, that there is or has been misconduct by a person in any activity which the person undertakes for the charity or body which it could undertake for itself (a provision aimed at fundraising activities), it may direct the person:

to cease acting, or representing itself as acting, on behalf of the charity or body in any activity specified in the direction,

to pay to the charity or body, within such period as the direction may specify, any sums which it has collected for the charity or body and which are held by it or by any relevant financial institution or other person on its behalf, after deducting any sums payable to the person or any other person under an agreement with the charity or body.

direct any relevant financial institution or other person holding property which OSCR considers to be, or to represent, sums collected for the charity or body not to part with the property without OSCR's consent.

There is no time limit on suspensions of individuals, but the other directions above are only valid for a maximum period of six months, after which they cease to have effect. If the OSCR wishes the effect of the direction to continue, it must apply to the court for an order. Whilst the direction is in force, failure to comply with it is an offence.

If the OSCR takes enforcement action it is required to prepare a report on the subject matter of its inquiries. With respect to inquiries that do not lead to enforcement action it is given the discretion to prepare a report. Reports must be anonymised: they must not mention the name of any person or contain any particulars which in the OSCR's opinion are likely to identify any person. There is no parallel provision in the Charities Act 1993, and in contrast to the FSA, there is thus to be no policy of 'naming and shaming'. Copies must be sent to any person with respect of whom inquiries were made, and must be published in such manner as the OSCR thinks fit.

2.5.4.3 Powers to apply to court

Under clause 30 the OSCR may apply to the court to make the following orders:

interdict (whether temporarily or permanently) the charity from such action as the court, on the application of OSCR, thinks fit;

interdict (whether temporarily or permanently) the body from representing itself

as a charity or from such other action as the court, on the application of OSCR, thinks fit;

appoint a judicial factor (whether temporarily or permanently) to manage the

affairs of the charity or body;

(d) where the charity or body is a trust, appoint a trustee;

(e) suspend or remove any person concerned in the management or control of the charity or body;

(f) order any relevant financial institution or other person holding property on behalf of the charity or body or of any person concerned in its management or control not to part with the property without the court's consent;

(g) make an order restricting the transactions which may be entered into, or the nature or amount of the payments which may be made, in the administration of the charity or body without the court's consent,

(h) interdict (whether temporarily or permanently) the person from representing the body as a charity or from such other action as the court, on the application of OSCR, thinks fit.

In addition, the OSCR may apply to court to approve transfer schemes, as noted above.

2.6 Other powers

2.6.1 Scottish Charitable Incorporated Organisations (SCIOs)

The draft Bill provides that charities may be constituted as a charitable incorporated organization. It contains only brief provisions relating to the constitution, name and status of SCIOs, and in contrast to the draft Charities Bill does not contain any provisions at all relating to applications for constitution as, or conversion into, a SCIO, registration in the Register and the effect of registration, the administration of a SCIO, amalgamation of SCIOs and transfer of a SCIO's property to another SCIO, or the winding up, insolvency or dissolution of a SCIO. These provisions will be made by regulations issued by Ministers, together with any other provisions they think fit.

The only power that the OSCR is given under the bill with respect to SCIOs is the power to direct any body which is not a SCIO and which is representing itself as being a SCIO, or any person who is representing that any such body is a SCIO, to stop doing so. If the body fails to comply, the OSCR may apply to the Court of Session for an interdict.

2.6.2 Designated religious charities

The draft Bill introduces a 'lighter touch' regulatory regime for religious charities. Such charities may apply to the OSCR to become 'designated religious charities'. The OSCR may confer designated religious status to any charity which appears to it to have its to have as its principal purpose the advancement of religion, and as its principal activity the regular holding of public worship. In addition, the charity has to have been established in Scotland for at least 10 years and have a membership of at least 3,000 persons resident in Scotland who are at least 16 years of age.

Finally, it is a condition of attaining DRC status that one or more authorities in Scotland exercise supervisory and disciplinary functions in respect of the 'component elements' of the charity, and in particular, those elements are subject to requirements as to keeping accounting records and audit of accounts which appear to OSCR to correspond to those required for other charities under the draft Bill.

Certain provisions do not apply to DRCs. These include the OSCR's powers to give directions to a charity not to undertake activities, to suspend charity stewards, and to seek orders from the court relating to the management of the charity, including suspension or removal of stewards.

The OSCR may, by 21 days' notice, withdraw the DRC status where it appears to the OSCR that the charity's principal purpose is no longer the advancement of religion or its principal activity is no longer the holding of regular public worship. It may also withdraw DRC status where, as a consequence of inquiries, it has directed the body, or person, to stop representing the body as a charity, or has issued an order restricting the transactions that may be entered into without its consent, and it considerd that it is no longer appropriate for the charity to be a designated religious charity. The OSCR is required to give reasons for its decision.

Note that in contrast to FSA, which also operates a 'lighter touch' regime for organisations which are being regulated by another body, the OSCR has no power to direct those authorities who are exercising disciplinary and supervisory functions over the DRCs to take any actions with respect to the charity's activities that would otherwise be regulated by the OSCR.

2.6.3 Fund raising

As with the draft Charities Bill, the regulatory regime for fund raising is intended to be principally self regulatory, although reserve powers have been conferred on Ministers to regulate fund raising. The consultation paper makes it clear that these will be used should the self regulatory system be seen to be inadequate.

The regulatory scheme proposed in the draft Bill is that fund raisers enter into formal agreements with charities and 'benevolent bodies', the contents of which will be set out in regulations. The OSCR, as well as the benevolent body, may apply to the sheriff if it considers that a fundraiser is breaching this agreement. However, the OSCR has no powers to stop a person raising money ostensibly for a benevolent body but without a formal agreement. In these circumstances, it is the only the benevolent body which may apply to the court for an interdict.

The OSCR may also devise and publish criteria for granting 'designated national collector' status to those persons it thinks fit, which will replace the current 'exempt promoter' status. The OSCR is required to consult representatives of local authorities, charities and such other persons as it sees fit in devising the criteria. DNCs will have to give a minimum of three months' notice (as opposed to one month's notice) to local authorities for collections.

The OSCR may exercise some of its general enforcement powers, detailed above, against fundraisers, notably directions to cease acting, pay moneys over to the charity, and not to part with property without the OSCR's consent, and to seek court orders confirming those directions. It also has the power to apply to the sheriff for an order relating to the application of funds where it is satisfied that the sums collected by a fundraiser cannot be applied for the purposes for which they were collected. The court may order any person holding such sums not to part with them without the court's consent, or approve (or modify) a scheme prepared by OSCR for the transfer of those sums to a charity specified in the scheme.

2.6.4 Cooperation with other regulators

As some of the charities registered in Scotland will also be registered elsewhere in the UK, and may also be incorporated, the OSCR is expected to co-operate with other with similar powers (ie the Charities Commission and Companies House) to minimise the burden of regulataion on charities already registered elsewhere.

2.7 Appeals

2.7.1 The Scottish Charity Appeals Panel

Ministers are required under clause 46 of the draft Bill to establish the Scottish Charity Appeals Panel. The details of the structure and membership of the Panel are set out in Schedule 2 to the draft Bill.

Panel members are appointed by the Minister to serve terms of up to five years. There must be three members, at least one of whom must have five years experience as a qualified solicitor or advocate.

The terms and conditions of panel members, including remuneration and allowances, are determined by Ministers. They may be dismissed by Ministers if Ministers are satisfied that the person is unable to discharge the functions of a Panel member or is unsuitable to serve, or to continue to serve, as a Panel member.

Scottish Ministers may provide the Panel, or ensure that it is provided, with such

property, staff and services as they consider necessary or expedient in connection with

the exercise of its functions, and may make rules as to its practice and procedure.

2.7.2 Rights of appeal

Decisions by the OSCR are subject to a requirement for internal OSCR review, and to appeal to the Scottish Charity Appeals Tribunal, established under the draft Bill. Review and appeal rights lie for decisions:

to refuse entry to, or remove entry from, the Register;

refusals to consent to name changes or to require name changes;

directions that actions agreed by resolution by small charities relating to changes in purpose, transfers or amalgamations should not have effect;

directions to cease activities;

requests for information under its general powers to make inquiries;

suspension of charity stewards or public trustees;

any direction which it may issue as part of its general enforcement powers;

a direction to cease representing oneself as a SCIO, and

refusal or removal of DNC or DRC status.

Any person or charity with respect to whom the decision was made may require the OSCR to conduct a review of the decision, within 14 days of the decision being made. The review must be completed within 14 days, and the draft Bill confers on the OSCR the power to devise and publish the review procedures. The OSCR may confirm the decision, with or without variations, or reverse it.

If the person is still dissatisfied with the decision, they may appeal to the Scottish Charities Appeal Panel. The Panel may confirm the decision, quash the decision and direct the OSCR to take such other action as the Panel thinks fit, or remit the decision back to OSCR for reconsideration. It is only required to give reasons when remitting the decision back to the OSCR. If the decision is remitted back to the OSCR it must confirm, vary, reverse or revoke the decision.

The Panel may not award expenses to OSCR or to any person who appeals a decision, in contrast to the Charity Appeals Tribunal, which may make an order for costs.

Decisions of the Panel are appealable by either party to the Court of Session. The Court may confirm the decision, or quash the decision and direct the OSCR to take such action, if any, as the Court thinks fit.

2.8 Accountability

2.8.1 Ministers

Ministers agree the funding for the OSCR, appoint its Board members, and approve the terms and conditions of staff and chief officer. As noted above, Ministers also have a general power to determine the terms and conditions on which Board members vacate office, and have a number of specified powers to dismiss Board members, including dismissal where 'it is necessary or expedient to do so in connection with the management of affairs of the OSCR'.

The OSCR is also under a duty to prepare an annual report on the exercise of its functions, which may include any general recommendations which the OSCR may have made arising from the exercise of its functions during that year and any previous year. The report must be sent to Ministers, and the draft Bill places the OSCR under an obligation to comply with any direction given by Ministers as to the form and content of the report.

2.8.2 Parliament

A copy of the annual report must be laid before the Scottish Parliament. The OSCR will also be audited by the Auditor General.

2.8.3 Other stakeholders

The OSCR is under a duty to consult wider stakeholders in developing criteria for the application of the 'charity test' and of 'designated national collector' status.

There is no provision equivalent to those applying to the Charity Commission, the OFT and the FSA to hold open meetings on the annual report.

2.8.4 The courts

The OSCR will be subject to the normal principles of judicial review.

Part 3 The Financial Services Authority (FSA)

3.1 Introduction

The Financial Services Authority (FSA) was formed in 1997 and received its full statutory powers on 1^st December 2001 under the Financial Services and Markets Act 2000 (FSMA). It is not established by statute, but is an incorporated body under the Companies Act 1985. FSMA radically reformed the regulation of financial services in the UK, and gave the powers of nine previous regulatory bodies to the FSA. It also consolidated and replaced previous legislation governing the regulation of financial institutions, so, in contrast to the OFT, the FSA only receives powers under, and has to administer, a single piece of legislation.

The FSA regulates those who engage specified activities including deposit taking, dealing, managing or arranging investments or providing investment advice. Its scope is expanding: in 2004 it will take over the regulation of mortgage advice, and from 2005 the regulation of the sale of general insurance and insurance for long term care. Unlike many financial regulators, the FSA not only regulates a wide range of financial institutions but it is responsible for regulating the way that firms conduct their business as well as their financial soundness. It currently regulates over 10,700 financial institutions, which will expand by around 20,000 when it takes on its new responsibilities in 2004-5. It has a staff of just over 2,000.

3.2 Status

FSA is a body corporate which is not established by statute, but receives powers under the FSMA. Unlike the OFT, is not to be regarded as acting on behalf of the Crown and its members, officers and staff are not Crown servants. It is not funded by Parliament but through fees levied on the regulated industry, and its fee income for the last financial year was £236.4 million.

3.3 Board structure

The FSA is required to have a Chairman and a governing body, of which the Chairman must be a member. The Chairman and governing body must be appointed, and are liable to removal from office, by the Treasury. The FSA must ensure that the majority of board members must be non-executives. There are currently three managing directors and eleven non-executive Board members, in addition to the Chairman and Chief Executive.

The FSA is required to establish a committee of non-executive Board members, the chairman of which committee is to be appointed by the Treasury. The non-executive committee is required to carry out a range of functions including: keeping under review the question of whether the FSA is using its resources in an efficient and economic way, and whether it has adequate internal financial controls; determining the remuneration of the Authority's governing body and its executive members. The non-executive committee may appoint a sub-committee to perform this function, of which the chairman must be the chairman of the main committee, but whose members need not be drawn from it. The non-executive committee must prepare a report on the discharge of its functions to be submitted to the Treasury with the FSA's annual report.

The FSA may exercise any of its executive functions through committees of the Board, but its legislative functions must be exercised by the Board as a whole. It must maintain arrangements designed to enable it to determine whether those being regulated are complying with the regulatory requirements, and those arrangements may provide for those functions to be performed by others acting on its behalf.

Unlike the OFT, the Act does not make provision for there to be a separate chairman and chief executive, however it does require that the FSA have regard to principles of good corporate governance. Under the FSA's first chairman, Howard Davies, the roles were combined. On the appointment of his successor, Callum McCarthy as chairman in 2003, however, the roles were split, and John Tiner was appointed chief executive with effect from the same date.

3.4 Objectives and functions

The FSA has four statutory objectives which apply to the discharge of its 'general functions'. These are:

the maintenance of market confidence in the UK financial system;

promoting public understanding of the financial system;

securing the appropriate degree of protection for consumers; and

reducing the scope for financial crime.

In discharging its statutorily defined general functions the FSA is also required to have regard to seven principles of good regulation. These are:

the need to use its resources in the most efficient and economic way;

the responsibilities of those who manage the affairs of regulated firms;

the principle of proportionality;

the desirability of facilitating innovation in connection with regulated activities;

the international character of financial services and the desirability of maintaining the competitive position of the UK;

the need to minimise the adverse effects on competition of regulation; and

the desirability of facilitating competition between those being regulated.

The FSA's general functions are those of:

making rules;

preparing and issuing codes;

giving general guidance; and

determining the general policy and principles by reference to which it performs its particular functions.

In discharging those functions, the FSA must, so far as is reasonably practicable, act in a way which is compatible with the regulatory objectives, and which it considers is most appropriate for the purpose of meeting those objectives.

The FSA also has further specific function, which is to act as the competent authority for implementing EU legislation on listing securities. In performing this function, it is required to take the same principles into account (with the exception of that of having regard to the responsibilities of senior management) as noted above, although there is no comparable set of statutory objectives which it is specifically required to meet.

3.5 Powers

3.5.1 Authorisation, permissions and individual approvals

3.5.1.1 Authorisation and permissions

The FSA is responsible for granting permissions, and thus authorisation, to people to carry on financial services activities. The Act prohibits persons who are not authorised or exempt from carrying on regulated activities within the UK or falsely claiming to be authorised or exempt. Breach of this provision is a criminal offence.

The main route to authorisation, other than via the EC authorisation routes, is being ranted a permission by FSA. Conducting business in breach of a permission is subject to enforcement action by the FSA, but it does not mean that a person is acting without authorisation. Once a permission is cancelled, either by the FSA or the person holding the permission, the FSA must give notice withdrawing authorisation.

Once a person has obtained a permission from FSA they are authorised. The FSA may place limitations on the permission, restricting the types of activities the person may carry out, and may make specific requirements of a person, for example that they obtain more capital. Permissions may subsequently be varied or cancelled by the FSA. With the exception of those automatically authorised by statute, the FSA thus performs a basic gatekeeping activity, determining who should be entitled to carry on those activities and who should not.

In giving permission, the FSA is required to ensure that the person satisfies and will continue to satisfy the five threshold conditions set out in Schedule 6. These relate to the legal status of the applicant, the location of its head office and registered office, any close links that the person may have, its resources, and its suitability. Note that if the person fails to satisfy the conditions of the permission, the FSA is not under a duty to revoke the permission but may take other action with respect to an authorised person in the interests of consumers (for example, requiring an insurance company to close to new business). The FSA has set out extensive guidance on the criteria it will use to determine whether the conditions have been met in its Handbook.

Finally, when giving a permission or subsequently varying it the FSA has the power to impose an 'assets requirement' on the person. These either prohibit the person from dealing or place restrictions on his dealing with his assets, or require some or all of those assets, or customer assets held by the person, to be transferred to and held by a trustee approved by the FSA. Assets held by a trustee may be released or dealt with only with the FSA's consent, breach of which is a criminal offence. Breach of the requirements on the authorised person is subject to disciplinary action by the FSA.

3.5.1.2 Approvals of individuals

The Act establishes a new regulatory regime for individuals performing specified 'controlled' functions in performing regulated activities. These functions relate to the management of a firm, dealing with customers, and dealing with the property of customers. Such individuals must be notified to the FSA, who must be satisfied that the person is 'fit and proper' to perform the function to which the application relates. In 2003-4 the FSA issued over 48,000 individual approvals.

Refusals are may be appealed by the firm and the individual to the Financial Services and Markets Tribunal (see below), as may withdrawals of approval. Approved persons are subject to a separate set of principles and code, contained in the Handbook.

3.5.3 Rule making

The FSA has extensive and complex rule making powers. It is entitled to impose legally binding requirements on authorised persons, and in some cases on unauthorised persons. These provisions are not subject to Parliamentary approval or approval by the Treasury, and the Act places no limit on their territorial scope. It also has the power to make evidential rules, to issue guidance, and to grant waivers. Breach of the FSA's rules is subject to disciplinary action by the FSA. The FSA also has the power, in most instances, to determine which of its rules will be subject to a private right of action for their breach. It has used this power with respect to its Statements of Principle, high level, general provisions which, whilst made under the general rulemaking power, are not subject to a private right of action for their breach.

The FSA has the power to make the following types of provisions:

Rules under the general rule making power

Rules under specific rule making powers

Evidential provisions

Guidance

Statements of Principle

Codes (with evidential status)

Statements of Policy

Directions and other requirements imposed on classes of persons

Directions and other requirements imposed on individuals

Individual guidance

Schemes

All of the above, with the exception of directions and other requirements imposed on individuals, and schemes, are contained in its Handbook. The Handbook is extensive, and runs to several thousand printed pages. It is divided into five sections or 'blocks':

High level standards

Business standards

Regulatory Processes

Redress

Specific sourcebooks

The Handbook clearly indicates the status of a provision in the margin, for example marking rules with 'R'; evidential provisions with 'E'; guidance with 'G', and directions with 'D'. The Handbook is available on the internet, in printed copy or on CD-ROM, and the FSA has published an accompanying guide explaining its structure and format.

3.5.3.1 General rules

The FSA has a general power to make such rules applying to authorised persons with respect to the carrying on by them of regulated and unregulated activities as appear to be necessary and expedient for the purpose of protecting the interests of consumers ('general rules'). This limits the extent to which the FSA can make rules relating to unregulated activities, but it renders the relationship between the FSA's statutory objectives and the purposes for which the general rule making power more complex. One interpretation is that the FSA may not make rules simply for the furtherance of a statutory objective; but in making rules for the purposes of protecting consumers it must ensure that the statutory objectives are met.

3.5.3.2 Specific rule making powers

In addition to its general rule making power, the Act confers upon the FSA over twenty specific rule making powers. Some of these authorise the FSA to make rules which would override common law, such as rules restricting the flow of information within firms (permitting 'Chinese Walls'), rules on the handling of clients' money, and allowing for the provision of 'cooling off' rights in contracts between consumers and authorised persons (unilateral rights granted to the customer to cancel or withdraw from the contract after it has been made and recover any premiums paid). Others provide for the FSA to make rules which provide 'safe harbours' from the effect of other provisions, such as the stabilisation rules, compliance with which provides a defence against the offences of market abuse, insider dealing and misleading statements and practices.

Other specific rule making powers have been intended, and been used, to create quite extensive and complex areas of regulation. Examples include the powers to make rules relating to money laundering; to make rules regulating the communication of financial promotions; to make listing rules; to make rules regulating authorised unit trust schemes; to make rules establishing a compensation scheme; and to make rules establishing an Ombudsman scheme. Some rule making powers enable the FSA to make rules relating to certain classes of person, such as designated professional bodies, auditors and actuaries.

The FSA has also been given the power to endorse the rules of the Takeover Panel, with the consequence that the FSA can impose sanctions if an authorised person breaches a provision of the City Code on Takeovers and Mergers and the Rules Governing Substantial Acquisitions of Shares. It also has the power to endorse rules to allow firms to follow the rules of other bodies instead of its own, for example stabilisation rules of overseas regulators. Finally, it may make rules providing for payment to it of fees in connection with the discharge of its functions as will enable it to meet expenses, repay loans and maintain adequate reserves.

3.5.3.3 Evidential provisions

The FSA also has the power to make rules which have evidential status only. Breach of such provisions is not subject to enforcement action. Rather, compliance with such provisions can be relied upon as tending to establish compliance with an associated rule, and contravention of the provision can be relied upon as tending to establish contravention of the rule. Evidential provisions are used quite frequently in the Handbook.

3.5.3.4 Guidance

The FSA has the power in addition to issue and publish guidance on a wide range of issues, including its own rules and on the definitions of 'regulated activities' under the Act. Guidance may consist only of 'information and advice', and is thus non-binding. This power is widely used in the Handbook, and indeed sections of the Handbook consist mainly of guidance rather than rules, for example, the provisions on Inter-Professional Dealing. It also has the power to give individual guidance to authorised persons.

3.5.3.5 Statements of Principle

The Act confers on the FSA the specific power to make Statements of Principle for approved persons. These principles must be accompanied by a code of practice. The power includes the power to make different provisions in relation to different persons. Breach of the principles is subject to disciplinary action by the FSA. The Statement of Principles for Approved Persons and accompanying Code is contained in the Handbook, and the Principles are marked 'P'.

3.5.3.6 Codes

The FSA has two specific powers to make codes. These are the Code for Approved Persons and the Code on Market Abuse. The codes of practice are required to help determine whether or not a person's conduct complies with the statement of principles for approved persons, or with the statutory provisions on market abuse. The codes may indicate conduct which, in the FSA's opinion, does or does not amount to breach of the Statement of Principle or offence of market abuse, and factors which, in its opinion, are to be taken into account in determining whether or not a person's conduct complies with those provisions. The codes may be altered or replaced at any time, subject to certain consultation procedures.

The Code for Approved Persons has evidential status only. However, the controversy surrounding the market abuse offence, in particular the power of the FSA to impose penalties for its breach, led to the insertion of the provision in the Act that compliance with the Code of Market Abuse would constitute a full defence against any allegation of market abuse. The Code is thus evidential with regard to breaches, and conduct not in the Code may still amount to market abuse, but is conclusive with regard to exemptions. To facilitate interpretation, the FSA has marked as 'C' in the Handbook that conduct which it does not consider amounts to market abuse.

3.5.3.7 Statements of Policy

The FSA has wide powers to impose penalties, and the Act imposes four specific requirements on the FSA to issue a statement of policy as to how it will exercise those powers. These are with respect to the exercise of its powers with respect to:

Penalties generally;

Penalties for breach of the listing rules,

Penalties for breach of provisions relating to market abuse; and

Penalties for breach of provisions relating to approved persons.

These statements do not have legal status, so there is no automatic right of redress should the FSA depart from them, though it may be that under principles of public law they establish a legitimate expectation that they will be observed. Detailed guidance on each of these issues is contained in the FSA's Handbook.

3.5.3.8 Directions and other requirements imposed on classes of individuals

The FSA is given specific powers to issue directions and other requirements for classes of individuals, notably the Society of Lloyd's, designated professional bodies and recognised investment exchanges and recognised clearing houses. In each case, directions are the mechanisms by which the FSA may regulate another regulator.

(i) Lloyds

With respect to Lloyd's, the FSA's powers to issue directions have the effect of bringing Lloyd's under the control of the FSA. The FSA has two different powers to issue directions with respect to the insurance market. It has the power to issue directions to market participants, which enables the FSA to determine which 'core parts' of the Act should apply to them from a list of 'core parts' set out in the Act. In exercising this power it must have regard to the interests of policyholders or potential policy holders, and any failure by the Society to implement an EEA requirement or otherwise to ensure effective exercise of the FSA's functions in relation to Lloyd's. It also has the power to issue directions to the Council directly or the Society or both. This may be given in relation to the exercise of a specific power, or its powers generally, with a view to achieving, or in support of a specified objective. This enables the FSA to regulate the insurance market regulator, as well as market participants directly.

(ii) Designated professional bodies

As regards designated professional bodies, the situation here is that members of certain professional bodies (such as accountants or solicitors), which are designated by the Treasury, are exempt from the requirement to seek authorisation by the FSA if they carry out regulated activities only to an extent that is 'incidental' to their main professional activities, and for which they are not rewarded by commission unless they account for it to the client. Instead, in carrying out those activities they will be subject to regulation by their professional bodies. In order to ensure that the regulation is adequate, the FSA has to approve the rules of the professional body in so far as they apply to the conduct of regulated activities, and is placed under a duty to monitor the way that regulation is conducted by those professional bodies, and is given the power to issue directions to remove the exemption either from the professional body as a whole, or from a particular firm.

(iii)Recognised investment exchanges and clearing houses

With respect to recognised investment exchanges and recognised clearing houses, the FSA may direct the body to take specified steps, including altering its rules or suspending or discontinuing such of its operations as may be specified. Directions may be issued where the body has failed or is likely to fail, to satisfy the recognition requirements or any other obligation imposed by the FSA or under the Act. Directions are enforceable by injunction (England and Wales) or an order for specific performance (Scotland).

3.5.3.9 Directions and other requirements imposed on individuals: waivers

The FSA has a range of powers to make specific requirements of individuals, for example to provide it with information when seeking authorisation, and to furnish it with documents and information in the course of investigations.

One of the most significant set of powers is the power to make directions waiving or modifying rules with respect to authorized persons. Waivers may be made on the application or with the consent of the authorized person. The power is granted with respect to specified rules, including those made under the general rule making power, and may only be exercised where the FSA is satisfied that compliance with the rules would be unduly burdensome or would not achieve the purpose for which the rules were made, and the direction would not result in undue risk to persons whom the rules were intended to protect.

Waivers or modifications must be published by the FSA, unless it considers it is inappropriate or unnecessary to do so. In deciding whether to publish, the FSA must take into account whether or not the rule is subject to a private right of action under s.150, must consider whether its publication would unreasonably prejudice the commercial interests of the authorized person or member of his group, or contrary to international obligations. It must also consider whether it is necessary to identify the authorized person to whom the waiver was given. The FSA may also revoke waivers, or vary it on the application or with the consent of the authorized person.

3.5.3.10 Schemes

Finally, the FSA has the power, if separately authorised by the Treasury by a 'scheme order', to establish and operate a scheme for reviewing past business by authorised persons. The FSA must report to the Treasury and request a scheme order, and the Treasury has to be satisfied that there has been a widespread or regular failure on the part of authorised persons to comply with the rules relating to a particular kind of activity, and as a result that persons have suffered or will suffer loss in respect of which compensation would be payable. A scheme order may authorise the FSA to establish and operate a scheme for determining the nature and extent of the failure, establishing the liability of authorised persons to make compensation payments, and determining the amount payable. This is intended to facilitate the implementation of reviews of past business such as that instituted for the sale of personal pensions under the old regulatory regime. In contrast to all the above powers, there are no requirements for consultation or cost benefit analyses to be performed.

3.5.3.11 Procedures to be followed when exercising rule making functions

The Act sets out quite detailed procedural provisions relating to the exercise of the FSA's rule making powers. Prior to making a rule or issuing general guidance, the FSA must follow statutory consultation procedures. These require a draft of the proposed rule to be published in such a way as appears to it to be best calculated to bring them to the attention of the public (in practice, on its website), and the draft must be accompanied by a cost benefit analysis, an explanation of the purpose of the proposed rule, a statement of compatability of the rule with the FSA's objectives, and a notice of the consultation period. The FSA is to have regard to any representations made, and before it makes the proposed rules or guidance must publish a general account of the representations made and its response to them. If the provisions made differ in a way which is in the opinion of the FSA significant, then the FSA must publish details of the difference. A reasonable fee may be charged for the draft. The consultation and CBA procedures may be waived if the FSA considers the delay would be prejudicial to the interests of consumers (or with respect to the Code on Market Abuse, if there is an urgent need). Rules must be made in writing and copies sent to the Treasury.

The full consultation provisions apply to all rules, including the endorsement of the Takeover Panel's rules, though in notifying its endorsement of subsequent alterations of those rules, the FSA simply has to be satisfied that the Panel's consultation procedures have been adequate. Attenuated consultation procedures apply to the issuance of directions and to statements of policy. These are the same as the full procedures, with the exceptions that there is no requirement to give an explanation of the purpose of the proposals, and no requirement to give a statement of compatability. Cost benefit analyses are required for all rules, guidance and directions, with the exception of statements of policy, schemes and notifications to the Panel. They are also not required for rules relating to fees, the ombudsman scheme, the compensation scheme and the funding of the legal assistance scheme for the Tribunal, although in each case details of expenditure are required.

The FSA has issued over 230 consultation papers since December 2001, and in January 2004, in recognition of the overload on those who may wish to respond, has introduced a 'star rating' system to indicate the importance of consultation papers. 'Three star' papers are those relating to major policy changes and issues of high importance which will affect a large number of firms or consumers; 'one star' papers are those of minor importance. It also issues policy statements, which give summaries of representations made to consultation papers and the FSA's response, with final rules; discussion papers, which are intended to stimulate discussion on a particular issue and may precede a consultation paper; and occasional papers, which are more academic in content, written by FSA and non-FSA authors, and which are externally refereed.

3.5.4 Powers relating to gathering information and investigations

The FSA's powers on information gathering and investigations are set out in Part XI. It has five separate sets of powers, some of which are exercised concurrently with the Department of Trade and Industry (DTI):

Powers to gather information and documents directly from authorised and other regulated persons

Powers to require reports from skilled persons

Powers to carry out general investigations

Powers to investigate particular breaches

Powers to investigate to assist overseas regulators

3.5.4.1 Powers to gather information and documents

The FSA may require past or present authorised persons, by written notice, to provide information or documents where these are reasonably required in connection with the FSA's statutory functions. The notice must describe the information or documents in specific terms. Information may be also be required from connected persons, including a person who is or has been a member of the authorised person's group, its controller, a member of the same partnership, or officers, managers, employees and agents of the authorised person. The FSA may ask for information to be provided in a particular form, or to be verified or authenticated in a particular manner, provided such requests are reasonable.

3.5.4.2 Reports by skilled persons

The FSA may require an authorised person to produce a report on any matter which could have been the subject of the general information gathering powers in s.165. The requirement can be imposed on an authorised person, any other member of its group, or a partnership of which it is a member. Further, those providing services to the authorised person are placed under a duty to co-operate with the person appointed to write the report. The person making the report has to be nominated or approved by the FSA and must be someone the FSA believes has the necessary skills, for example a lawyer, accountant or actuary. The cost of producing the report falls on the firm.

3.5.4.3 General investigations

If it appears to either of them that there is good reason to do so, the FSA or Secretary of State may appoint one or more competent persons to conduct a general investigation into the business of an authorised person or appointed representative, any particular aspect of their business, or the ownership or control of an authorised person. The power extends to past authorised persons or appointed representatives, and the investigation can extend to unregulated activities of the business. The investigator also has the power to extend the investigation to members of the same group or partnership.

Written notice must be given prior to the investigation or extension of the investigation, unless the investigating authority believes this is likely to result in the investigation being frustrated. Investigators appointed under s.167 may require those under investigation and those connected with them to attend for interview or provide such information as the investigator may require and which is relevant for the purposes of the investigation. They may also require any person to produce documents relevant to the investigation.

3.5.4.4 Particular investigations

Under s.168 the FSA or the DTI may appoint investigators if it appears to it that circumstances suggest that certain offences may have taken place, including insider dealing, market abuse, and conduct of unauthorised business. In addition the FSA (but not the DTI) may appoint investigators where it appears to it that there has been, inter alia, a breach of FSA rules, or an offence under the money laundering regulations.

Investigators appointed under s.168 have wider powers than those appointed under s.167. They may require any person to attend for interview or otherwise provide such information, documents or assistance as the investigator may reasonably require for the purposes of the investigation. When investigating certain offences, including market abuse, market manipulation, misleading statements or insider dealing, there is no need to identify or give notice to a person under investigation.

3.5.4.5 Investigations in support of overseas regulators

The FSA may use its general information gathering powers and the power to appoint a skilled person to assist an overseas regulator. It may also appoint an investigator to investigate 'any matter'. The FSA may allow a representative of the overseas regulator to attend and take part in any interview conducted for the purposes of the investigation, subject to the FSA being satisfied that the regulator will keep the information obtained confidential. The FSA is required to issue a statement of policy on its conduct of interviews with overseas regulators, which must be approved by the Treasury.

3.5.4.6 Powers of entry

Powers are given to the police, not the investigating authorities, to enter premises to search for documents or information required for an investigation which a person has refused, or is likely to refuse, to hand over voluntarily. The applicant must show, inter alia, that there are reasonable grounds for believing that the documents or information are on the premises, and that either a request has been made or if it were made would not be complied with, or the documents or information to which it relates would be removed, tampered with or destroyed. A warrant must be obtained from a magistrate, or in Scotland, a sheriff. Application must be made by the FSA, the Secretary of State or an investigator. The provisions of the Police and Criminal Evidence Act 1984 apply to warrants issued under this provision.

3.5.4.7 Supplemental powers of investigators

Investigators have certain supplemental rights regarding documents that persons may be compelled to give. Where these are in the hands of a third party, the third party may be compelled to give them. Copies and extracts of documents may be taken, and the person producing the document and any 'relevant person' may be required to give an explanation of it. Relevant person includes directors, controllers, certain professional advisors and employees of a person. A person who is required to produce a document but fails to do so may be required to state, to the best of their knowledge and belief, where the document may be found. Special provisions apply to documents in respect of which a person owes a duty of banking confidence.

3.5.4.8 Admissibility of evidence

Following Saunders v United Kingdom (1996) 23 EHRR 313, statements produced under powers of compulsion are admissible in criminal proceedings only in limited circumstances. The Act expressly allows for such statements to be used in non-criminal cases, with the exception of the market abuse regime. Where proceedings are to be taken by the FSA for market abuse, any material obtained by a person under compulsion will not be admissible against him or her. The provision was deliberately made to ensure that if the market abuse regime was held to be criminal in nature under article 6 ECHR, the legislation would provide all the safeguards required.

3.5.4.9 Failure to co-operate

Failure to co-operate with an investigation may be certified in writing to the court and is treated as contempt of court. In addition, it is a criminal offence to interfere with documents which are known or suspected to be relevant to an investigation; it is a defence if there was no intention to interfere. It is also an offence to knowingly or recklessly provide information which is materially false or misleading, or intentionally to obstruct a warrant.

3.5.5 Enforcement powers

The FSA's enforcement powers are extensive, and it has set out detailed guidance in the Handbook as to how these powers will be exercised. It has the power:

to prohibit individuals from performing regulated activities if it considers that they are not 'fit and proper';

to impose unlimited financial penalties on authorised persons;

to make public statements of misconduct for breaches of any requirement made by or under the Act;

to impose restitution orders against authorised persons;

to make prohibition orders against those who have breached the 'fit and proper' requirement;

to bring prosecutions (in England, Wales and Northern Ireland) for all criminal offences created under the Act, and additionally to prosecute offences of insider dealing contrary to Part V of the Criminal Justice Act 1993 and breaches of money laundering regulations.

The FSA may also apply to the court with respect to breaches of its own rules and other 'relevant requirements', including the offences of market abuse, insider dealing and money laundering, for injunctions, restitution and 'freezing' orders.

An injunction may be obtained where the court is satisfied that there is a reasonable likelihood that any person will contravene a relevant requirement, and the court may order the contravenor and any other person who appears to have been knowingly concerned in the contravention to take such steps as the court may direct to remedy it. The court may also make an order restraining someone who the court is satisfied may be a contravenor, or a person knowingly involved, from disposing or otherwise dealing with any of his assets.

Restitution orders may be given if the court is satisfied that a person has breached a relevant requirement or been knowingly concerned in the contravention and either that he has accrued profits as a result or one or more persons have suffered loss or been otherwise adversely affected.

The court may award such sum as appears to it to be just, having regard to the profits or losses incurred, such award to be made to those to whom the defendant's profits are attributable, or who have suffered loss or adverse effects.

Detailed procedures for issuing notices prior to taking enforcement action are set out in the Act. Broadly, the FSA has to issue three types of written notice in the course of its enforcement processes. First, a warning notice, which states the action the FSA might take, gives reasons and specifies a reasonable period for making representations. The person to whom the warning notice is given must also be given access to the material on which the FSA relied in taking the decision and any secondary material which might undermine the decision, unless the material is excluded or access to it would not be 'fair' or 'in the public interest'. Where the FSA decides to take disciplinary action a warning it must then issue a decision notice, which states the action it will take, with reasons, whether the statutory rights of access to evidence apply, and whether there is a right of appeal to the Tribunal. The person must have the same rights of access to material as are available under a warning notice. The FSA must then either give a notice of discontinuance (if it is not going to proceed) or a final notice (if the decision is not referred to the Tribunal). Warning and decision notices must not be published; however the FSA is obliged to publish such information as it considers appropriate about final notices and notices of discontinuance.

The FSA is required under the Act to publish a statement on its enforcement procedures, which must be open to consultation. The Enforcement Manual, which sets out the FSA's policies and procedures on enforcement, is contained in the Handbook.

3.6 Appeals

The Act establishes the Financial Services and Markets Tribunal, and appeals to the Tribunal may be made with respect to any decision notice or supervisory notice issued by FSA by the person to whom the notices were addressed. The Act requires the FSA to establish a legal assistance scheme to be funded by authorised persons.

The Tribunal is independent of the FSA and run by the Lord Chancellor. The Lord Chancellor must appoint a panel of persons to serve as chairmen of the Tribunal who must be lawyers with a seven year general legal qualification. From the panel the Lord Chancellor must appoint a President and Deputy President with a ten year general qualification. The Lord Chancellor also appoints members of a lay panel, who must be people who appear to him to be qualified by experience or otherwise to deal with matters that may be referred to the Tribunal. The terms on which the members of the Tribunal are appointed are a matter for the Lord Chancellor, who may remove them on the ground of incapacity or misbehaviour.

The Tribunal has jurisdiction over matters of fact and law. The Tribunal may consider any evidence relating to the subject matter of the reference, whether or not it was available to the FSA at the relevant time. It may summon any person to give evidence or produce documents to it, and failure to comply is an offence. Evidence may be given on oath.

The Tribunal has the power on determining a reference

to remit the matter to the FSA with such directions as it considers appropriate, which the FSA is obliged to follow;

to make recommendations as to the FSA's regulating provisions or its procedures, which are not binding on FSA;

to make orders as to costs.

Appeal from the Tribunal lies to the Court of Appeal on a point of law.

3.7 Accountability

There are several different mechanisms by which the FSA is made accountable to ministers, Parliament, authorised persons and stakeholders more generally. In addition, the FSA's rules are subject to a specific review by the competition authorities to ensure that they do not have a significantly adverse effect on competition.

3.7.1 Ministers

The FSA is required to issue an annual report to the Treasury. The FSA must report on the discharge of its functions, the extent to which its statutory objectives have been met, its consideration of the principles of regulation set out in the Act, and other matters as the Treasury may from time to time direct.

In addition, ministers have the following powers with respect to the FSA:

Appointment and removal of members of the governing body;

Requirement to alter rules where they have a 'significantly adverse effect on competition' (discussed below), or in order to comply with the UK's EU or international obligations;

Defining the scope of its annual report;

Commissioning 'value for money' audits;

Arranging independent inquiries into regulatory matters of serious concern.

3.7.2 Parliament

The Treasury is required to lay the FSA's Annual Report before Parliament. The FSA is subject to scrutiny by the Treasury Select Committee.

3.7.3 Other Stakeholders

3.7.3.1 Consultation

As noted above, the Act makes extensive provisions for the FSA to consult on the exercise of its rule making powers.

3.7.3.2 Consumer and Practitioner Panels

The Act further requires the FSA to make and maintain effective arrangements for consulting practitioners and consumers on the extent to which its policies and practices are consistent with its general duties under section 2. These arrangements must include the establishment of consumer and practitioner panels to represent the interests of these groups. The consumer panel is funded by the FSA. The FSA is required to consider representations made to it by either panel, and should it disagree with the statements, to give the panel a written statement of its reasons for disagreeing. The panels publish annual reports, and the FSA's own annual report includes a statement from the chairmen of the panels.

3.7.3.3 Public meeting

Finally, the FSA is required to hold a public meeting to consider the annual report, and to report on the meeting.

3.7.4 Complaints and redress against the FSA

3.7.4.1 Complaints Commissioner

In addition to the provision of a system of hearings and appeals for disciplinary actions, noted above, the Act requires the FSA to make arrangements for the investigation of complaints arising out of the exercise or non-exercise of its functions, other than its legislative functions, and to appoint an independent complaints investigator to be responsible for the conduct of investigations.

The FSA has established the Complaints Commissioner, who may investigate complaints on her own initiative or on reference from the FSA. She may make compensatory payments to those wrongly damaged by FSA. The FSA has set out details of how to make complaints in its Handbook. The FSA is not, however, subject to the jurisdiction of the Parliamentary Commissioner for Administration.

3.7.4.1 Judicial review and immunity from damages

The FSA is also subject to the normal principles of judicial review. However the Act confers immunity from liability for damages on the FSA except where it acts in bad faith or in breach of the European Convention on Human Rights.

3.7.5 Competition review of FSA's rules

Under the Act the FSA's 'regulating provisions and practices' (including rules) must not have a significantly adverse effect on competition. Compliance with the provision is monitored by the Office of Fair Trading. If it considers there is an adverse effect on competition, it reports to the Competition Commission. If the Competition Commission considers there is a breach of this requirement and the breach is not justified, it reports to the Treasury, which must require the FSA to take appropriate remedial action unless the Treasury considers that the exceptional circumstances of the case make it inappropriate or unnecessary for them to do so. The Treasury may also direct the FSA to take action where the Competition Commission as ruled there is no adverse effect if in the same circumstances.

Part 4 The Office of Fair Trading

4.1 Introduction

The Office of Fair Trading is now the main regulatory body dealing with consumer protection and competition regulation in the UK. Previously existing on a non-statutory basis to provide administrative support to the Director General of Fair Trading (DGFT), the Enterprise Act 2002 re-established it as statutory incorporated body. The office of the DGFT was abolished and the OFT took over its functions on 1^st April 2003.

The powers of the OFT have been substantially increased by the Competition Act 1998 and the Enterprise Act 2002. The OFT also has has statutory duties and powers under a wide range of legislation, including the Consumer Protection (Distance Selling) Regulations 2000; the Unfair Terms in Consumer Contracts Regulations 1999; the Control of Misleading Advertising Regulations 1988; the Estate Agents Act 1979 and the Consumer Credit Act 1974.

The OFT is divided into three main divisions: Consumer Policy Enforcement; Competition Enforcement; and Markets and Policy Initiatives. It currently has a staff of 678. The OFT publishes several documents outlining its main activities and functions, as well as extensive guidance on the use of its powers.

The powers of the OFT differ with respect to each of the Acts and Regulations it administers. This report will focus on its powers with respect to the enforcement of competition law, and will outline its powers with respect to five main aspects of consumer protection law: regulation of consumer credit, estate agents, and the key provisions of the enhanced consumer protection powers conferred by the Enterprise Act 2002.

4.2 Status

The OFT is a body corporate, and acts on behalf of the Crown. Its staff are therefore civil servants.

4.3 Board

The Board has a separate chairman and chief executive. The chairman is appointed by the Secretary of State, currently John Vickers. The chief executive is appointed by the Secretary of State after consultation with the chairman, and must be a separate person from the chairman. The post is currently held by Penny Boys.

The Secretary of State may appoint at least three further members in consultation with the chairman. There are at present five other board members. The term of appointment is five years, and there are no limits on renewability. Board members, including the chairman, may be removed by the Secretary of State for incapacity or misbehaviour. The terms and conditions of board members, including their remuneration, are determined by the Secretary of State.

The OFT may appoint its own staff, in consultation with the Minister for the Civil Service as to numbers of staff and terms of appointment, including remuneration. In contrast with the FSA, there is no requirement to have a non-executive committee, nor any provision as to whether or not Board members are executives or non-executives.

The OFT can determine its own procedures, and is required to have regard both to principles of good corporate governance and to guidance on the governance of public bodies in managing its affairs.

4.4 Objectives and functions

The OFT has no statutory objectives. It does, however, have four statutory functions:

the acquisition of information:

o the OFT is required to obtain, compile and review information relevant to the performance of its functions to ensure it has sufficient information on which to base decisions and carry out its other functions effectively.

the provision of information to the public:

o the OFT is required to make the public aware of the benefits of competition, and of how it performs its functions.

the provision of information and advice to Ministers:

o the OFT has the function of making proposals or giving other information or advice to any Minister or other public body on any matter relevant to its functions, including future and existing legislation. This is in addition to its specific responsibilities to advise on particular matters, including certain types of mergers and the competitive effects of the rules of specified regulatory regimes (notably financial services and rights of legal audience).

promoting good consumer practice:

o the OFT has the function of promoting good practice 'in the carrying on of activities which might affect the economic interests of consumers in the United Kingdom'. This includes the practice of approving, and withdrawing approval from, codes of practice intended to safeguard the interests of consumers. The OFT has the power to determine the criteria for approval, which must be published. These are available from the OFT's website.

4.5 Powers: Competition Regulation

The OFT has considerable powers under the Enterprise Act 2002 and the Competition Act 1998 with respect to investigating whether or not the prohibitions on mergers, cartels and abuse of dominant position contained in those Acts have been breached. These powers have recently been extended to the enforcement of EU provisions on competition law by firms engaging in business in the UK and the EU.

The OFT has substantial powers to investigate breaches of competition law, and the power to impose penalties on firms for abuse of dominant position and for breaching the prohibition on cartels. With respect to certain mergers and markets which it suspects have features which prevent, restrict or distort competition, it may refer these to the Competition Commission for consideration. With respect to mergers it may, however, accept enforceable undertakings from businesses that they will not engage in these practices in lieu of making a reference.

It also has powers to apply to the court for an order disqualifying directors for breach of competition law, or alternatively to accept an enforceable undertaking from directors that they will not be a director of a company for a specified period. Participation in cartels is a criminal offence, but the OFT has the power to issue no-action letters which would render individuals immune from prosecution in certain cases.

4.5.1 Merger references to the Competition Commission

Under the Enterprise Act 2002, the OFT has a function to obtain and review information relating to merger situations and a duty to make a reference to the Competition Commission with respect to anticipated or completed mergers in the UK, where it believes that the merger will result in a substantial lessening of competition within any market or markets within the UK.

The OFT has the discretion not to make a reference if it believes that the markets are not sufficiently important to justify making a reference, or where it believes that the advantages to consumers from the merger outweigh the lessening of competition and any adverse effects of such lessening. In addition, it need not make a reference with respect to an anticipated merger if it considers that the arrangements are not sufficiently advanced or not sufficiently likely to proceed to justify making a reference.

The provision applies to mergers where the value of the turnover of the enterprise being taken over exceeds £70 million, or where as a result of the merge at least twenty five percent of the goods or services of a particular description will be supplied by or two any one person, or persons by whom the enterprises are carried on. The OFT has the power to determine the criteria by which this assessment will be reached.

These powers are exercised concurrently with the principal utilities regulators (including the Office of Communications, Office of Rail Regulation, Gas and Electricity Markets Authority, and the Civil Aviation Authority) with respect to mergers of firms regulated by those bodies.

The OFT is also required to advise the Secretary of State as to whether he should exercise his powers to make a reference with respect to public interest cases or special public interest cases. Public interest considerations are defined in the Act and include considerations of national security, but the Secretary of State may identify such other considerations as he thinks appropriate. In each case, the Secretary of State must issue an intervention notice to the OFT. The OFT must produce a report advising on the considerations relevant to making a reference, and on whether the considerations are met which would justify not making a reference. It must also give a summary of any representations which it has received about the case, and relate these to any public interest consideration mentioned in the notice and which may be relevant to the Secretary of State's decision.

There are no specific requirements on firms to notify the OFT about proposed mergers (other than certain newspaper mergers); however the OFT has issued guidance encouraging notification. It has also issued extensive guidance on its interpretation of the substantive provisions and procedures with respect to merger references.

4.5.2 Market investigations: references to the Competition Commission

The OFT may make a market investigation reference to the Competition Commission where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts, or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK. However, a reference cannot be made by the OFT where an undertaking has been accepted in lieu of a reference or where a ministerial reference of the same matter has been made but not determined by the CC. As with the merger powers, these powers are exercised concurrently with the principal utilities regulators.

The OFT has issued guidance on how it will exercise its powers with respect to market investigations, and has stated that it will act in accordance with the Enforcement Concordat issued by the Cabinet Office. The guidance states that the OFT will only make a reference where the statutory criteria are met, and where, in its view, making a reference is the most appropriate way of addressing the issue. These conditions are detailed further in the guidance.

4.5.3 Powers to obtain information and conduct investigations

4.5.3.1 Mergers

With respect to merger investigations, the OFT has the power to request from those carrying on the relevant enterprises such information as it may require for the purposes of deciding whether or not to make a reference. The Competition Commission has extensive powers to obtain evidence, documents, estimates and forecasts, to require the attendance of witnesses, and require that evidence be given on oath.

4.5.3.2 Cartels and abuse of dominant position

Under the Competition Act 1998 (as amended by the Enterprise Act 2002), the OFT may conduct an investigation if there are 'reasonable grounds for suspecting' that either of the prohibitions on agreements that restrict competition or abuse of dominant position have been breached. These powers were extended by the Enterprise Act to cover breaches of EC competition law. The OFT has extensive powers to obtain information for the purposes of such an investigation. It has published guidelines on its powers and how it will use them.

(i) Request for information with written notice

The OFT may issue a notice requiring a person to produce a specified document or specified information which it considers relevant to an investigation under s.25. The notice may be addressed to any person. The information can be specified by reference to a particular item or category. The OFT has the power to take copies or extracts from a document, to ask for an explanation of it, and if the document is not produced to ask where it is believed to be.

(ii) Powers of entry without a warrant

The OFT has very wide powers of entry. Any investigating officer may enter business premises without the use of force in connection with an investigation under s.25 (cartels and abuse of dominant position) without the need to obtain a warrant. Premises are defined to include vehicles.

If the premises are occupied by a party under investigation there is no need to give prior warning or notice, nor is it necessary for the OFT to have tried first to have obtained information under s.26 (written inquiries). The investigating officer must produce a document on entry to the premises, however, stating the subject matter and purposes of the investigation and showing his authorisation from the OFT. If the premises are occupied by a third party, there is a requirement to give two days' written notice, and the notice must indicate the subject matter and purposes of the investigation.

The investigating officer may take with him any necessary equipment, for example a laptop or tape recorder; may require any person to produce documents which the officer considers relevant or say where they may be found; ask for explanations of documents and take extracts or copies (but not originals). He may also require production in visible, legible and portable form any relevant information held on a computer.

(iii) Powers of entry with a warrant

The OFT may apply for a warrant giving him power of entry to business premises, and that warrant may permit the use of reasonable force to obtain entry. A warrant may also be obtained to enter domestic premises if they are used in connection with an undertaking's affairs or an undertaking's documents are kept there. There are several grounds: if there are reasonable grounds for suspecting that a document sought by written notice or by investigation without a warrant, but not produced, is on the premises; that there are reasonable grounds for suspecting the document would be interfered with if it were required to be produced; or that entry to the premises without a warrant has not been possible and there are reasonable grounds for suspecting the document is on the premises.

Investigators' powers under a warrant are wider than the s.26 or s.27 powers in that they can take originals of documents away for up to three months, and can also take any other necessary steps to preserve the existence of documents. The warrant must authorise investigating officers by name, and warrant must specify the subject matter and purposes of the investigation and the offences for non-compliance. The warrant may also identify other authorised persons to accompany the investigating officer, which the OFT has indicated may be used to permit IT experts to accompany OFT officers on searches.

In investigations with or without a warrant there is no statutory right on the part of the person being searched to obtain legal help, but the OFT has indicated that if the firm does not have an in-house lawyer it will wait a reasonable time (about an hour) for a lawyer to arrive before starting the investigation. In all forms of investigation, the principle of legal professional privilege is maintained,but no other documents may be withheld on the grounds of confidentiality. The Enterprise Act 2002 imposed duties of confidentiality on the OFT with respect to information and documents obtained during the course of investigations.

(iv) Offences for non-compliance

There are criminal sanctions for non-compliance with the powers of investigation. Offences apply to persons, including undertakings, and officers of corporate bodies (directors, managers, secretary) are also liable if they consented to or connived at an offence or it is due to neglect on their part. The main categories of offence are:

failing to comply with a requirement imposed under ss.26-28:

intentionally obstructing an officer investigating with or without a warrant;

intentionally or recklessly destroying, disposing of, falsifying or concealing documents, or causing or permitting those things to happen;

knowingly or recklessly supplying information which is false or misleading in a material particular.

There are defences if a person does not have a document or information in his possession or control and it was not reasonably practicable for him to get it. And there is a general defence for investigations by written notice and without a warrant that the investigator failed to act in accordance with the section. Penalties are a fine and / or imprisonment for up to two years.

(v) Further powers to obtain information with respect to the cartel offence

The OFT has been given further powers in the Enterprise Act 2002 to obtain information with respect to investigating whether an individual has committed the cartel offence. The OFT may by notice require the person under investigation to answer questions, provide information or documents or state where they are, to their best knowledge and belief, take copies or extracts of documents, provide explanations, and haw the power to enter premises on a warrant from the High Court. It is an offence not to comply with a requirement without reasonable excuse.

The OFT has also been granted powers under the Regulation of Investigatory Powers Act 2000 to conduct intrusive surveillance (surveillance in domestic premises or private vehicles by means of a person or surveillance device), and has been given powers under the Police Act 1997 to take action with respect to property, including telephone lines.

4.5.4 Enforcement powers

4.5.4.1 Enforcement powers under the Competition Act 1998

The OFT's enforcement powers with respect to cartels and abuse of dominant position are set out in ss.32-41 CA. The OFT has powers to order cessation of infringements of the prohibitions on cartels and abuse of dominant position. It has three main sets of enforcement powers: issuing directions, imposing penalties, and taking interim measures. The OFT has issued detailed guidance on the application and use of these powers.

Before using its enforcement powers, the OFT must give written notice to persons likely to be affected and an opportunity to make representations. The parties may in some circumstances request the right to make oral representations, but there is no inter partes hearing. The OFT must, on request, give the parties an opportunity to inspect its file on the proposed decision, excluding confidential information and internal OFT files. In adopting a decision there is no statutory duty to give reasons, but the OFT guidelines state reasons will be given.

(i) Interim measures

The OFT has the power to take interim measures. If the OFT has a reasonable suspicion that the prohibitions on cartels or abuse of dominant position have been breached, but has not completed its investigation, it may give directions for the purpose of preventing serious, irreparable damage to a particular person, or of protecting the public interest, if he considers that it is necessary to act as a matter of urgency. As with final notices the DGFT must give notice to affected persons prior to making an interim direction, with the opportunity for the person to make representations. Any direction may be similar to a final direction and enforced in a similar way.

(ii) Final directions

The OFT may give such directions as it thinks appropriate to bring the infringement to an end. These may include a request for an agreement or market conduct to be modified or ceased. Directions may be given to 'appropriate' persons, not necessarily those who were parties to a cartel agreement or perpetrators of the conduct. The purpose is to enable the OFT to give directions to parents, affiliates or private individuals with the ability to influence or procure actions by infringers.

If a person subject to final or interim directions fails to comply with them without reasonable excuse, the OFT may apply to the court for an order requiring compliance within a specified time. Breach of a court order is contempt of court, punishable by fines or imprisonment.

(iii) Penalties under the Competition Act

The OFT has significant powers to impose penalties under the Competition Act. It may impose a fine not exceeding 10% of the UK turnover of the penalised undertaking for each year of infringement, up to a maximum of three years. This is a significant enhancement of the OFT's powers. Before imposing a penalty, the OFT must be satisfied that the infringement has been committed intentionally or negligently. Intention may be deduced from internal documents or from deliberate concealment of the agreement or conduct in question. The OFT is required to produce guidance as to its policy on penalties, which must be approved by the Secretary of State. The current guidance is published by the OFT.

There is limited immunity from penalties (though not the other possible sanctions of voidness of the agreement and third party actions) in specific instances:

for 'small agreements' with respect to the prohibition on cartels, and 'conduct of minor significance', with respect to the prohibition on abuse of dominant position. The criteria is defined by the Secretary of State. Immunity will be granted where the OFT is satisfied that an undertaking acted on the reasonable assumption that being party to such an agreement gave it immunity. The immunity may be withdrawn if the OFT, after investigation, considers that infringement is likely.

Where an application for guidance or a decision on cartel agreements, for the period from the date of notification to the date specified by a notice from the OFT

Where guidance has been given with respect to either the prohibition on cartels or abuse of dominant position

Where there has been a decision that neither prohibition has been infringed

Where an agreement has been notified to the European Commission for exemption under Article 81(3), for the period from notification until the European Commission determines the matter.

(v) The leniency programme and no-action letters

In order to encourage persons to provide information about cartels the OFT operates a leniency programme. The leniency policy is a major innovation in enforcement policy both for the OFT and regulatory agencies in the UK more generally, and was extended to individuals by the Enterprise Act 2002, which made participation in a cartel a criminal offence for individuals.

With respect to businesses, total immunity is available to the first member of a cartel to come forward with relevant information. Immunity is automatic if the OFT has not already begun and investigation and does not have sufficient evidence to establish a cartel exists. Immunity is discretionary if the OFT has begun an investigation but has not yet given written notice of its proposal to make a decision that the cartel prohibition has been breached. In order to gain immunity, the undertaking must meet certain criteria, including providing the OFT with all documents, information and evidence available to it regarding the existence of a cartel, must not have been the instigator or leader of the cartel or compelled others to join, and must cease its involvement with the cartel from the time it comes forward. The undertaking may request no-action letters from the OFT with respect to named current or past directors or employees.

Penalties may also be reduced by up to 50% for those who come forward with relevant information before the OFT has issued written notice of its proposal to make a decision, or where they are the first to do so, but the undertaking was the leader or instigator of the cartel or compelled others to join.

With respect to individuals, the OFT has the power to issue no-action letters. The OFT has set out criteria for issuing no-action letters, although has stated that compliance with the criteria does not mean a no-action letter will automatically be given.

(vi) Power to accept commitments

The Enterprise Act 2002 introduces new powers to the OFT with respect to cartels and abuse of dominant position which are akin to the powers to accept undertakings in relation to mergers. Where the OFT has begun an investigation but not made a decision, for the purposes of addressing the competition concerns that it has identified it may accept from such person or persons as it considers appropriate commitments to take such action or refrain from taking such actions as it considers appropriate. The effect of such commitments is that the OFT will not continue its investigation, or make a decision or give a direction in relation to the conduct that was the subject of the investigation and which are covered by the commitments, unless it has reasonable grounds for believing there has been a material change in circumstances, or reasonable grounds for suspecting that the commitments are not being adhered to or that they were given on the basis of information that was materially false or misleading. The commitments are enforceable on application to the court by the OFT. The OFT must issue guidance setting out how it will use its powers, and whilst it is not required to review the effectiveness of commitments, if it does do so it must publish its report and send a copy to the Secretary of State. The OFT has published guidance setting out how it will use its powers.

(vii) Powers of prosecution

The OFT has the power to prosecute criminal offences created under the Act, including the offence of participating in cartel agreements introduced by the Enterprise Act 2002. It also has the power to seek orders disqualifying directors under the Company Directors Disqualification Act 1994.

4.5.4.2 Mergers: powers to accept undertakings in lieu of references

Although the OFT does not have the power to determine whether or not a merger breaches the competition rules, it does have the power to accept undertakings from businesses in lieu of making a reference. This is a novel form of power, which stops short of a full power to impose directions or orders, but which may in practice have the same effect. It also has the power to take pre-emptive action.

(i) Pre-emptive action

The OFT may, for the purposes of preventing pre-emptive action, accept from such of the parties as it considers appropriate, undertakings to take such action as the OFT considers appropriate. Pre-emptive action is defined as action which might prejudice the reference or impede the OFT taking of any act which might be justified by a Commission decision.

The OFT may also issue orders restricting or prohibiting action which it considers to be pre-emptive action, impose obligations on any person regarding the safeguarding of assets, provide for the safeguarding of assets or carrying on of activities in any manner it considers appropriate, and require it to supply information, which the OFT may publish.

(ii) Undertakings in lieu of reference

The OFT may also accept undertakings in lieu of making a reference. This is a significant power, as the decision as to whether or not the statutory conditions for restricting or preventing the merger is not put before the Competition Commission. The Act provides that where it has a duty to make a reference with respect to anticipated or completed mergers it may accept an undertaking for the purposes of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effects relating to it. The effect of such an undertaking is that a reference cannot be made whilst it is in place, material facts concerning transactions or arrangements were not notified to the OFT or made public prior to the undertaking being accepted. Undertakings may be varied or released by the OFT, and are published on the Enterprise Act Register of Undertakings and Orders.

Where the OFT considers that such an undertaking has not been, is not being or will not be fulfilled, or that information in relation to the undertaking was given to the OFT which was false or misleading in a material respect, it may make an order requiring anything specified in Schedule 8, and such supplementary, incidental or consequential provision as the OFT thinks appropriate. Schedule 8 provides that orders may make provisions as to the conduct of business, including provisions as to pricing, conditions and terms of business, provisions relating to the provision of goods and services, provisions relating to the acquisition and division of a business, to the supply and publication of information, and to national security.

The OFT also has the power to issue an interim order prior to making a final order with respect to undertakings in lieu of reference if it has reasonable grounds for suspecting that action which might prejudice the making of the order is in progress or contemplation.

The Secretary of State may also accept undertakings in lieu of references in public interest cases, which are also published in the Enterprise Act Register of Undertakings and Orders.

4.5.5 Powers to give individual guidance and decisions

Under the Competition Act 1998 the OFT has the power to issue individual guidance or decisions with respect to agreements that have been notified to the OFT for the purposes of assessing whether or not it infringes the prohibitions on cartels or abuse of dominant position, for which it may charge a fee. Where guidance only is sought, the OFT will not consult third parties, the procedure is confidential and it is open to the OFT to change guidance at a later date, if and when third party representations are made. Guidance must be written, together with supporting facts and reasons.

Where an agreement or conduct is notified for decision, the OFT must consult the public where a decision is to be made to grant an exemption; it may consult if the decision is that there has been no infringement. All notifications of decisions must be entered on a public register, given a summary of the agreement or conduct in question and an indication of the results of the application. The OFT also has the power to make provisional decisions after preliminary investigation, which are not appealable and which do not affect the final decision.

The consequences of giving guidance or a decision that an agreement does not infringe the competition law prohibitions are that the OFT may not impose a penalty, and cannot proceed further against the agreement unless he has reasonable grounds to believe that there has been a material change in circumstances, or reasonable grounds to suspect that he was given information that was materially incomplete, false or misleading, or one of the parties asks him for a decision.

4.5.6 Appeals under the competition regime

4.5.6.1 Competition Appeals Tribunal

Appeals against the OFT's decisions with respect to competition provisions may be made to the Competition Appeals Tribunal, established under the Enterprise Act 2002.

The Lord Chancellor appoints the President and members who shall form a panel of chairmen, and the Secretary of State appoints members to form a panel of ordinary members. The Tribunal is supported by the Competition Service, a body corporate established under the Act. For the purposes of any proceedings, the Tribunal shall consist of a chairman (either the President or a member of the panel of chairmen) and two other members. The Secretary of State is responsible for making rules of procedure, in consultation with the President. There are currently twenty members of the CAT, with experience in finance, economics, and business as well as law.

The CAT hears appeals with respect to decisions made by the OFT and the sectoral regulators under the Competition Act 1998; reviews decisions made by the OFT, the Competition Commission and the Secretary of State with respect to merger references; and hears actions for damages for monetary claims under the Competition Act. It also has jurisdiction with respect to breach of some EU competition regulations and certain decisions of Ofcom.

Under Sections 46 and 47 of the Competition Act, certain decisions taken by the OFT (or sectoral regulator) may be appealed to the CAT. The CAT may confirm, set aside, or vary the OFT's decision, or remit the matter to the OFT, or make any other decision that the OFT could have made.

4.5.6.2 Decisions which may be appealed and remedies

Decisions of the OFT which may be appealed to the CAT include

whether the prohibition on cartels or abuse of dominant position has been infringed

whether to grant an individual exemption, or its conditions, obligations, period or cancellation

As regards the conditions subject to which a parallel exemption under EC law is to have effect

As to the imposition of a penalty or as to the amount of any such penalty

Directions or interim measures with respect to infringements on the prohibitions on cartels or abuse of dominant position

The Secretary of State has power to add to the list of decisions that may be appealed.

Appeals may be brought by any party to an agreement in respect of which the OFT has made a decision, or any person with respect to whose conduct the OFT has made a decision, or any third party or representative of third parties who the considers has a sufficient interest in a decision (except in relation to the imposition of a penalty) made by the OFT.

The CAT has wide powers in determining appeals under the 1998 Act and may:

Confirm or set aside all or part of the decision

Remit the matter to the OFT

Impose, revoke or vary the amount of any penalty

Grant or cancel an individual exemption or vary any condition or obligation

Given directions or take such steps as the OFT could have taken

Make any decision which the OFT could have made.

If the CAT confirms the decision which is the subject of the appeal it may nevertheless set aside any finding of fact on which the decision was based. Except in the case of an appeal against the imposition or the amount of a penalty, the making of an appeal to the CAT does not suspend the effect of the decision to which the appeal relates, unless the CAT orders otherwise.

In addition, any person who has suffered loss or damage as a result of an infringement of either UK or Community competition law may bring a claim for damages or for a sum of money before the CAT in respect of that loss or damage. In general claims may only be brought before the CAT when the relevant competition authority (namely the OFT or sectoral regulator or the European Commission) has made a decision establishing that one of the relevant prohibitions has been infringed, and any appeal from such decision has been finally determined.

Under section 47B of the Competition Act (inserted by section 18 of the Enterprise Act), claims under section 47A may be brought by certain specified bodies on behalf of consumers.

The Act makes a novel provision which allows for the Lord Chancellor to make regulations which make provision for proceedings before the High Court to be transferred to the Tribunal, and before the Tribunal to be transferred to the High Court. Where the High Court has proceedings before it which require determination as to whether the prohibition on abuse of dominant position or cartels has been breached, that part of the proceedings may be transferred to the Tribunal for its determination, and for the High Court to give effect to that determination. With respect to third party rights to claim damages arising from infringement of the prohibitions on abuse of dominant position and cartels, the Act makes provision for proceedings brought in the High Court to be transferred to the Tribunal, and vice versa.

Appeal from the Tribunal lies to the court as to the amount of penalty or award of damages, or on a point of law arising from any other decision.

4.6 Powers: Consumer Credit Licensing

The Consumer Credit Act 1974 requires most businesses that offer goods or services on credit or lend money to consumers to be licensed by the OFT. Trading without a licence is a criminal offence and can result in a fine and/or imprisonment. The Act also makes provisions with respect to the content and format of credit card agreements and hire purchase agreements, which the OFT is required to monitor.

4.6.1 Licensing

Licenses are issued by the OFT if a person satisfies the OFT that:

they are a fit person to be involved in the activities the licence covers, and

the name under which they want to be licensed is not misleading or undesirable in any other way.

The Act does not specify criteria for assessing fitness, but these have been set out by the OFT in guidance. Licences are issued for up to five years, and may be revoked or suspended during that period should the OFT consider that the person has ceased to meet these conditions.

The OFT is required to maintain a public register of those holding licences, and the Consumer Credit Public Register may be consulted by visiting or contacting the OFT.

4.6.2 Powers of investigation and information gathering

In order to ascertain whether a breach of any provision under the Consumer Credit Act has occurred, the OFT has powers to require any person carrying on or employed with respect to a business to produce documents, or any person with control of information relating to the business to produce that information; to take copies or extracts. It also has the power to seize and detain any goods, documents or books, and to break open any container. Authorised officers of the OFT have the power to enter business premises without a warrant in order to ascertain whether a breach of any provision has been committed.

The OFT is also empowered to engage in 'mystery shopping' to ascertain whether or not breach of the Act has occurred. It is permitted to make, or authorize any of its officers to make on its behalf such purchases of goods or the provision or such services or facilities or enter into such agreements or other transactions as may appear to them expedient for determining whether any provisions made by or under this Act are being complied with.

4.6.3 Enforcement

It is an offence to engage in activities controlled by the Consumer Credit Act without a licence, and agreements made by unlicensed brokers are unenforceable without an order of the OFT. The OFT has the power to bring prosecutions for the offence.

The OFT also has the power to vary, revoke or suspend a licence during the five year term.

4.6.4 Appeals

Appeals against licence decisions are made to the Secretary of State, and heard by an 'approved person' belonging to a panel of persons appointed by the Secretary of State. The approved person makes a recommendation, with reasons, to the Secretary of State. The Secretary of State's decision must be published, and is appealable on a point of law to the High Court.

4.7 Powers: Estate Agents Act 1979

The Estate Agents Act 1979 imposed certain duties on estate agents. Whilst it did not establish a scheme for licensing estate agents, it provided that the OFT could ban a person from working as an estate agent if they breached certain provisions.

4.7.1 Duty to advise

The OFT is under a duty, 'so far as appears to [it] to be practicable and having regard both to the national interest and the interests of persons engaged in estate agency work and of consumers', to keep under review and from time to time advise the Secretary of State about the social and commercial developments in the UK and elsewhere relating to the carrying on of estate agency work and related activities; and the working and enforcement of the Act. The OFT is also required to publish information and advice on the operation of the Act.

4.7.2 Information gathering and investigation powers

The OFT's powers to require information and conduct investigations are largely the same as those conferred under the Consumer Credit Act 1974, including the right of entry to business premesis without a warrant. It also has the right of forcible entry to premises with a warrant.

4.7.3 Enforcement powers

The OFT may issue a warning notice and / or a prohibition orders, with 21 days notice, against individuals, partnerships or companies, and anyone employed by them. Orders may also be issued by local trading standards officers. The OFT can require anyone, including clients and potential buyers, to give information or produce documents before deciding whether or not to issue an order or carry out other enforcement activities. The OFT is required to maintain a public register of orders issued, which is available at its offices.

4.7.4 Appeals

A person may apply to the OFT to vary or revoke the order, and appeal lies to the Secretary of State and then, on a point of law, to the High Court.

4.8 Enhanced powers to protect consumers

4.8.1 Powers to seek court orders and accept undertakings with respect to certain provisions of consumer law

The OFT has powers under specific legislation and regulations to seek orders from the court. These include the power to seek orders with respect to unfair terms in consumer contracts and misleading advertisements.

Its powers to seek enforcement orders were greatly expanded by the Enterprise Act 2002. This gave the OFT and other specified bodies the power to seek enforcement orders from the court which would prohibit a business from carrying on an activity which breached provisions of specified legislative enactments and regulations. Thus far the regulations have specified provisions in 52 different Acts and 12 EC directives.

The power applies to domestic and Community infringements which harm the collective interests of consumers. Proceedings may be brought where a person has committed or is about to commit an infringement. Where the infringer is a company, proceedings may be brought against an 'accessory', that is a person who has a special relationship with the company by virtue of being a director, manager, company secretary or similar officer. Proceedings may not be brought without first consulting the person against whom the order would be made, unless the OFT considers that an application should be made without delay.

A range of bodies are given enforcement powers under the Enterprise Act, however it is intended that the OFT act as overall co-ordinator, and all other enforcing bodies are required to consult with the OFT before seeking an enforcement order, again unless the OFT considers an application should be made without delay. The OFT is also given powers to direct other enforcers.

The Enterprise Act also gives enforcers and the court the power to accept enforceable undertakings rather than seek or impose enforcement orders, and all other enforcers must notify the OFT of enforceable undertakings which have been accepted.

Undertakings may be enforced by the court, and the OFT may bring proceedings to enforce undertakings which have been accepted by other enforcers. Breach of undertakings to the court will be treated as contempt of court, as will breach of enforcement orders.

4.8.2 Super-complaints

The Enterprise Act introduced provisions for certain designated consumer bodies to make 'super complaints' to the OFT and other specified regulators. A super complaint is a complaint that 'any feature, or combination of features, of a market in the UK for goods or services is or appears to be significantly harming the interests of consumers'. The process is intended to be a fast-track system for designated consumer bodies to bring to the attention of the OFT and

the Regulators, market features that appear to be significantly harming the interests of consumers.

A feature of a market may be:

the structure of the market concerned or any aspect of that structure

any conduct (whether or not in the market concerned) of one or more than one person who supplies or acquires goods or services in the market concerned, or

any conduct relating to the market concerned of customers of any person who supplies or acquires goods or services.

The market in question may be regional, national or supranational (where the UK forms part of the market) although the OFT can only consider the effects within the UK.

The OFT is required to publish a reasoned response within 90 days. It may take a wide range of action, including:

launching a market study into the issue,

making a market investigation reference to the Competition Commission

taking enforcement action

referring the matter to a sectoral regulator with or without concurrent duties or to another regulator

taking no action

dismissing the complaint as unfounded, frivolous or vexatious.

The OFT has published guidance on the implementation of the super-complaints provisions.

4.8.3 Powers to Approve of Codes of Practice

The OFT has the power to approve self regulatory codes of practice. This power existed under the Fair Trading Act 1973 but was widely accepted to be ineffective at enabling consumers to identify businesses employing best practices or to encourage businesses to raise their standards of consumer service. The Enterprise Act gives the OFT enhanced powers to approve self regulatory codes, and the OFT has adopted a new approach and procedure for approvals.

The Consumer Codes Approval Scheme consists of two co-dependent stages. Code sponsors are required to complete Stage One by making a promise that their code meets the core criteria in principle. Stage Two requires them to demonstrate, with evidence, that their codes are effective in meeting those criteria. The OFT will only endorse and promote the code once its effectiveness has been demonstrated.

The OFT is required to publish, and has published, guidance on its core criteria and on implementation of the scheme.

4.9 Mechanisms of accountability

4.9.1 Ministers

The Secretary of State appoints the Board of the OFT and sets the terms and conditions, including remuneration, of their appointment.

The OFT is required to publish an annual plan and an annual report. The annual plan shall be published before each financial year and contain a statement of its main objectives and priorities for the year. The OFT is required to publish a consultation paper on its annual plan at least two months prior to the publication of the plan.

The OFT's annual report is to contain a report on its activities and performance, and is required to include a general survey of developments in respect of matters relating to the OFT's functions, an assessment of the extent to which its objectives have been met; a summary of significant decisions or investigations during the year; a summary of the allocation of its financial resources to its functions; and an assessment of the OFT's performance and practices with respect to its enforcement functions.

4.9.2 Parliament

The Annual report must be laid before Parliament, and the OFT is subject to scrutiny by Select Committee in the usual way. The OFT is subject to the jurisdiction of the Parliamentary Ombudsman.

4.9.3 Other stakeholders

The OFT is under obligations to produce guidance with respect to the use of many of its powers, and in addition publishes extensive guidance and leaflets on its operation. The OFT normally consults on guidance before it is issued. It also issues invitations to comment with respect to merger references.

4.9.4 The courts

The OFT is subject to the normal principles of judicial review.

Part 5 Compliance with the Recommendations of the Better Regulation Taskforce

The Better Regulation Task Force is an independent body which advises Government on how to ensure better regulation. In October 2003 the Task Force issued a report on

Independent Regulators, which made a number of recommendations relating to the formation, governance structure, accountability and operation of independent regulatory agencies.

This part of the report considers the extent to which the Charity Commission, the OSCR, the FSA and the OFT match up to those recommendations, to the extent that they relate to those bodies.

The Task Force's Recommendations

A full list of the Task Force's recommendations is set out below. Not all of these apply directly to regulatory bodies.

1 List all the independent regulators

The Cabinet Office should ensure that the 2004 edition of Public Bodies:

(i) lists every public body which is in some way connected to Government;

(ii) can be searched electronically by function so as to facilitate the identification of independent regulators; and

(iii) is made widely available and publicised extensively.

2 Landscape & end-to-end reviews

(i) Before establishing a new independent regulator a Department should carry out a landscape review of the delivery of the policy objective. This should explore whether another regulator could take on the new function, or whether a number of regulators could be subsumed within the new function.

(ii) Departments should carry out regular end-to-end reviews of their policy delivery areas to assess which bodies continue to deliver their policy objectives effectively and whether there are some which are no longer necessary.

3 Sharing best practice

(i) Departments should bring together those regulators that they sponsor or which are most closely linked to their Department in order to update them on best regulatory practice.

(ii) The Regulatory Impact Unit of the Cabinet Office should invite the National Audit Office to facilitate regular meetings of all independent regulators. The meetings should discuss issues of mutual interest to all independent regulators, such as the use of RIAs, governance, better regulation, appeals.

4 Appointment of staff

Government should allow all independent regulators sufficient flexibility to ensure they are able to appoint the staff they require for the regulator to operate effectively.

5 Management Statement

(i) All independent regulators, where appropriate, should have a Management Statement agreed with their sponsor Department or the Department to which they are most closely aligned.

(ii) For existing independent regulators without a Management Statement one should be agreed when a regulator is reviewed or as business plans roll forward.

6 Signing up to the Enforcement Concordat

By April 2004 independent regulators with enforcement powers should adopt the Government's Enforcement Concordat. Adoption of the Concordat should be prominently displayed on the regulator's website and in enforcement material.

7 Increasing the transparency of their decision making process by holding open meetings.

All regulators should hold at least one open meeting a year that stakeholders can attend, and at which stakeholders are able to ask the Board questions. Open meetings should be widely advertised.

8 Chair and Chief Executive

In setting up or reconstituting an independent regulator, the presumption should be to split the posts of Chair and Chief Executive. If the decision is taken not to split the posts, the decision should be justified.

9 Boards

All independent regulators should have a Board, with a balance of executive and non-executive directors. At least half the Board, excluding the Chair, should be comprised of non-executive directors. The size of the Board should be agreed between the independent regulator and the parent Government Department. If the decision is taken not to have a Board, the decision should be justified.

10 Induction and appraisal of Board members

Cabinet Office should review whether independent regulators are following its guidance on the induction and appraisal of Board members, and if necessary revise the guidance, by April 2004, to make sure it can be followed in a proportionate way. It should also consider the importance of regular updating and developing Board members' knowledge and capabilities.

11 Following the principles of good regulation in their work

The Government should ensure that where Management Statements are agreed with independent regulators, they should require them to pay due regard in their work to the five principles of good regulation. For new regulators Ministers should consider how to put them in their founding statute.

12 Preparing Regulatory Impact Assessments

All independent regulators should produce and make available for public scrutiny a Regulatory Impact Assessment on all new major policies and/or initiatives which will impact on those they regulate. Regulators should explain if they decide not to produce an RIA.

13 Consulting on all major policy proposals

By April 2004 all independent regulators should commit publicly to following the Government's Code of Practice on Consultation.

14 Increasing their accountability by having appeal mechanisms

(i) All independent regulators should have an appeals mechanism so that stakeholders can challenge decisions without recourse to judicial review. The regulator should however be able to dismiss time wasting appeals.

(ii) By July 2004, the Government should circulate to all independent regulators guidance on best practice on designing an appeals process.

Application of the Recommendations to the regulatory bodies

Of these, recommendations 4-14 apply most directly to regulatory bodies. The following table considers the extent to which the four regulators match up to those recommendations.

Regulatory body

Recommendations
Charity Commission Office of the Scottish Charity Regulator Financial Services Authority Office of Fair Trading

R 4: Sufficient flexibility in appointment of staff Staff are civil servants; CC has power to appoint staff; numbers and terms approved by Ministers Staff are civil servants; OSCR has power to appoint staff; numbers and terms approved by Ministers Staff are not civil servants; Ministers have no say in appointment and remuneration of staff Staff are civil servants; OFT has powers to appoint staff; numbers and terms approved by Ministers

R 5: Management statement No statutory requirement No statutory requirement No statutory requirement; published in practice Statutory requirement

R 6: Enforcement Concordat No statutory requirement to have regard to guidance for public bodies No statutory requirement to have regard to guidance for public bodies No statutory requirement, but is required to issue statement of policy on enforcement; main principles of Concordat met Statutory requirement to have regard to guidance for public bodies; explicit reference to Concordat principles made in publications on enforcement

R 7: Annual Open meeting Proposed in draft Bill Not proposed in draft Bill Statutory requirement Statutory requirement

R 8: Chair and Chief Executive split Proposed in draft Bill Proposed in draft Bill No statutory requirement; implemented in practice since 2003 Statutory requirement

R 9: Majority of non-executives on the Board Proposed in draft Bill Statutory requirement No statutory requirement; in practice majority are non-executives

R 11: Follow principles of good regulation; statutory duty for new regulators Not proposed in draft Bill Not proposed in draft Bill No statutory requirement Statutory requirement

R 12: Prepare RIAs No requirement proposed in draft Bill No requirement proposed in draft Bill Statutory requirement to conduct cost benefit analyses for all rules and guidance No statutory requirement; developed Competition Assessment which forms part of RIAs; provides advice on individual RIAs

R 13: Consult on all major policy proposals No general requirement proposed in the draft Bill; specific requirements to give public notice relating to certain resolutions by charities and before issuing certain orders Proposed requirement to consult on developing criteria for the 'charity test' Statutory requirement to consult on all proposed rules and guidance Statutory requirements to give notice and invite comments on a range of issues under competition regime; general practice of consultation

R 14: Appeals mechanisms for stakeholders Independent appeal tribunal proposed with rights of standing extended to Attorney General and 'any person affected by the decision' Independent appeal tribunal proposed with rights of standing to any charity or person with respect to whom a decision has been made Independent appeal tribunal for those to whom notices have been given
Independent appeals mechanism with respect to competition issues

Appeal to Secretary of State with respect to exercise of some other powers

Charities Bill 2004 (CB) cl 4.

CB Sched 1, inserting new Schedule 1A.

CB Sched 1, inserting new Sched 1A para 3.

CB Sched 1, inserting new Sched 1A para 4.

CB Sched 2.

CB Sched 1, inserting new Sched 1A para 1.

CB Sched 1, inserting new Sched 1A para 5.

CB Sched 1, inserting new Sched 1A paras 7 and 8.

CB cl 5 inserting s.1B.

CB cl 5 inserting s.1C.

CB cl 5 inserting s.1D.

Enterprise Act 2002 s.1(4).

CB cl 1-3.

CB cl 7, inserting s.3A.

CB cl 7, substituting s.3(4).

CB cl 7, inserting s3B.

CB cl 34, inserting s.75C.

CB cl 14, amending s.14(4).

CB cl 15, inserting s.14B.

CB cl 27, inserting s.73A(8).

CB cl 27, inserting s.73C.

CB cl 32, inserting s.74C.

CB cl 33, replacing s.75.

CB cl 33, inserting s.75B.

CB Sched 5 cl 1, amending s.6.

CB Sched 5 cl 2 and 3, amending ss 8 and 9.

CB Sched 5 cl 4, amending s.16.

CB Sched 5 cl 6, amending s.18.

CB Sched 5 cl 7, amending s.28.

CB Sched 5 cl 9, amending s.73.

CB Sched 5 cl 18, amending s.33.

CB cl 20, substituting s.29.

CB cl 20, inserting s.29(5).

Charities Act 1993 s.8.

CB Sched 5, cl 2.

Charities Act 1993 s.8.

Charities Act s.43 and 44.

CB Sched 5 cl 3.

Charities Act s.8(6).

Charities Act s. 11.

CB cl 21, inserting s.31A.

FSMA s.176.

CA s.28.

Enterprise Act 2002 s.203, amending ss.28, 62 and 63 Competition Act 1998.

CB cl 16, inserting s.19A.

CB cl 17, inserting s.19B.

CB cl 18, substituting s.20 and inserting s.20A.

CB cl 18, inserting s.20B.

CB cl 28, inserting s.73C.

CB cl 29, inserting s.73D.

CB Sched 6, inserting Part 8A and Sched 5A.

CB Sched 6, inserting s.69F.

CB Sched 6, inserting s.69F(3) and (4).

CB Sched 6, inserting s.69H-I.

CB Sched 6, inserting s.69J-K.

CB Sched 6, inserting s.69L.

This provision does not apply if the constitution is in Welsh and the change of address is from a Welsh address to an English address.

CB Sched 6, inserting ss.69M and 69P, and Sched 6 para 2, inserting Sched 5A para 13.

CB cl 6, inserting s.2A.

CB Sched 3, inserting Sched 1B para 1.

CB Sched 3, inserting Sched 1B para 6.

CB cl 6, inserting s.2B.

CB cl 6, inserting s.2D.

CB cl 6, inserting s.2C.

CB Sched 4.

CB Sched 1 para 11.

CB cl 46.

CB cl 18, substituting s.20 and inserting s.20A.

CB cl 18, inserting s.20B.

Minister for Communities, Draft Charities and Investments (Scotland) Bill, Consultation Paper, (Edinburgh, June 2004), p.9 (Consultation Paper).

Consultation Paper, p.16.

Charities and Trustee Investments (Scotland) Bill (CTISB) Sched 1 para 2(2)(c).

CTISB Sched 1 para 3.

CTISB Sched 1 para 5.

CTISB Sched 1 paras 6-8.

CTISB cl 7.

CTISB cl 8.

CTISB cl 3.

CTISB cl 17.

CTISB cl 6.

CTISB cl 18.

CTISB cl 26.

CTISB cl 15.

CTISB cl 10.

CTISB cl 11.

CTISB cl 13.

CTISB cl 16.

CTISB cl 34.

CTISB cl 55-58.

CTISB cl 56. Nothing in these provisions affects the power of the Court of Session to approve a cy près scheme in relation to any charity or public trust.

CTISB cl 57.

CTISB cl 58(6).

CTISB cl 20.

CTISB cl 18.

CTISB cl 37.

Note that 'misconduct in the administration of a charity' includes breach of the duties of charity stewards set out in cl 50. This applies to charity stewards standards of conduct which are akin to those imposed on company director.

CTISB cl 28.

CTISB cl 29.

CTISB cl 31.

CTISB cl 38-43.

CTISB cl 42.

CTISB cl 41.

CTISB cl 53.

CTISB cl 53(4) and (5).

CTISB Part 3.

Consultation Paper, p.24.

'Benevolent body' is defined to be 'a body (including a charity) which is established for

charitable, benevolent or philanthropic purposes' (cl 60 (1)).

CTISB cl 61(2).

CTISB cl 62; the provision does not apply to anything done by commercial participators or professional fundraisers with respect to the body.

CTISB cl 68; Consultation Paper, p 26.

CTISB cl 68.

CTISB cl 70.

CTISB cl 23.

CTISB Sched 2, para 1.

CTISB Sched 2, para 2(2).

CTISB Sched 2, paras 3 and 4.

CTISB cl 43.

CTISB cl 44.

CTISB cl 45.

CTISB cl 47.

CTISB cl 48.

CTISB cl 47(3).

CTISB cl 49.

CTISB Sched 1 para 2(2)(c).

CTISB cl 2.

Consultation Paper, p.15.

CTISB cl 8.

CTISB cl 68.

FSA, Annual Report 2003-4 (FSA, June 2004).

FSA, Management Budget and Plan 2003-4 (FSA, January 2004), p.32 (the figure includes contractors).

FSMA Sched 1 para 13.

FSA, Annual Report 2003-4 (FSA, June 2004), Section 4, Financial Review.

The provisions as to the corporate governance arrangements are made in FSMA, Sched 1.

FSMA Sched 1, paras 2 and 3.

FSMA Sched 1, para 3.

FSMA Sched 1, para 4.

FSMA Sched 1, para 5.

FSMA Sched 1, para 6.

FSMA s.7.

FSMA ss. 2-6.

FSMA s.2(3).

FSMA s.2(4).

FSMA s.2(1).

FSMA, s.73.

FSMA s.19(1).

FSMA s.31.

FSMA ss.19-20.

FSMA s.44-45.

FSMA s. 33(2).

FSMA Part IV.

FSMA s.42(7)(a).

FSMA ss.44-46.

FSMA s.41 and Sched 6 paras 1-5.

FSA Handbook of Rules and Guidance, Threshold Conditions.

FSMA s.48.

FSMA s.61.

FSA, Annual Report 2003-4 (FSA, June 2004).

FSA Handbook of Rules and Guidance, Statements of Principle and Code of Practice for Approved Persons.

FSMA s.150.

FSA, Reader's Guide: An Introduction to the Handbook.

FSMA s.138. Consumers are defined as persons who have used or may be contemplating using the services of authorised persons or appointed representatives, or who have rights or interests derived from or are attributable to the use of any such services by another person, or who have rights or interests which may be adversely affected by persons acting on their behalf or in a fiduciary capacity in relation to them (agents, trustees): FSMA s.138(7).

Blair et al, Blackstone's Guide to the Financial Services and Markets Act 2000 (London: Blackstone Press, 2001), p.144.

FSMA s.147.

FSMA s.139(1).

FSMA s.139(4).

FSMA s.144.

FSMA s.146

FSMA s.145.

FSMA s.74(4)

FSMA s.247.

FSMA s.213.

FSMA Part XVI.

FSMA s.332.

FSMA s.340.

FSMA s.143.

FSMA s.144(3).

FSMA Sched 1 para 17.

FSMA s.149.

FSMA s.64.

FSMA s.64 and s.119.

FSMA s.122(1).

FSMA s.210.

FSMA s.93.

FSMA s.124.

FSMA s.69.

FSMA ss. 316, 318 and 328.

FSMA s.316.

FSMA s.317.

FSMA s.332(5).

FSMA s.325.

FSMA s.328.

FSMA s. 296(1) and (2).

FSMA s.296(3).

FSMA s.148.

FSMA ss.152-156, 158. Rule making powers here refers to the general rule making power, specific rule making powers, powers to make evidential provisions, to give general guidance, to issue statements of principle and policy, codes and directions to classes of individuals.

FSMA s.155.

FSMA s.165.

FSMA s.166.

FSMA s.167.

FSMA s.169.

FSMA s.169(9)-(12).

FSMA s.176.

FSMA s.175.

FSMA s.175(5).

FSMA s.177(1).

FSMA s.177(3)-(6).

FSA Handbook of Rules and Guidance, chapter 13 (Enforcement).

FSMA ss.56-58.

S.206 (penalties) and S.205 (statements of misconduct).

Ss. 380-384.

S.56.

FSMA ss.380-384.

FSMA s.380.

FSMA s.382.

eg ss.56, 67, 78, 126, 127, 207-209, 385-386 and Part XXVI.

FSMA s.387.

FSMA s.394.

FSMA s.391.

Part IX.

FSMA s.136.

FSMA, Sched 13.

FSMA s.133.

FSMA Sched 13 para 11.

FSMA Sched 1 para 10.

FSMA Sched 1 para 2(3).

FSMA s.163.

FSMA s.410.

FSMA Sched 1 para 10(1).

FSMA s.12.

FSMA s.14.

FSMA Sched 1 para 10(3).

FSMA s.8-10.

FSMA Sched 1, paras 11 and 12.

FSMA Sched 1 paras 7 and 8.

FSA Handbook of Rules and Guidance, Complaints Against the FSA.

FSMA Sched 1 para 19.

FSMA s.159(2).

FSMA s.163.

OFT, Annual Report 2003-4 (July 2004), p.21.

Enterprise Act 2002 (EA), s.1.

EA Sched 1 para 1.

EA Sched 1 para 5.

EA Sched 1 para 6.

EA Sched 1 para 8.

EA s.1(4).

EA s.5.

EA s.6.

EA s.7.

EA ss. 5-8.

EA s.8.

OFT, Core Criteria and Guidance, and OFT's Consumer Codes Approval Scheme (March 2004); available at www.oft.gov.uk/business/codes/publications.htm.

EA s.22 and s. 33.

EA s.22(2) and s.33 (2).

EA s.33(2).

EA s.23.

EA ss. 42, 59 and 67.

EA s.42(3).

EA ss.44, 61and 68(1).

There are six sets of guidelines currently available on the OFT website: www.oft.gov.uk/Business/Mergers+EA02/publications.htm (accessed 15th July 2004).

EA s.131.

OFT, Market Investigation References: Guidance about the making of references under Part 4 Enterprise Act 2002 (March 2003).

EA s.31.

EA ss.109-110.

CA s.25.

The Competition Act 1998 and Other Enactments (Amendment Regulations) 2004, SI 1261.

OFT, Powers of Investigation, OFT 404 (March 1999); OFT, Draft Competition Law Guideline on Powers of Investigation (April 2004).

CA s.26.

CA s.27 as amended.

CA s.28.

CA s.28A.

OFT, How will the Enterprise Act 2002 change the Competition Act 1998 Regime? (OFT, 2003).

OFT, Guideline Powers of Investigation 404 para 5.6; Draft Competition Guidelines on Powers of Investigation paras 4.10-4.11.

CA s.30.

EA ss.239-243; OFT, Draft Competition Law Guideline on Powers of Investigation, paras .6.8 - 6.13.

CA s.72.

CA s.42-44.

CA s.42.

EA s.193-195.

EA s.201.

EA s.199, amending s.32 RIPA 2000.

EA s.200, amending Part 3 Police Act 1997.

OFT, Enforcement (OFT 404), and Enforcement: incorporating the OFT's guidance as to the circumstances in which it may be appropriate to accept commitments (Consultation Paper, OFT 407a, April 2004). Final papers are due to be published in August 2004.

CA s.31.

CA s.35.

CA s.32 and s.33.

CA s.34.

CA s.36.

CA s.36(3).

OFT, Enforcement, para 4.8; Guidance as to the appropriate amount of a penalty, March 2000.

CA s.38.

OFT, Enforcement, March 1999; Guidance as to the appropriate amount of a penalty (March 2000).

CA s.36; Competition Act 1999 (Small Agreements and Conduct of Minor Significance) Regulations 2000, SI 2000/262; The Competition Act 1998 and Other Enactments (Amendment Regulations) 2004, SI 2004/1261.

CA s.13(4) and (5); s.14(4) and (5).

CA ss.15(3) and 23(3).

CA ss 16(3) and 24(3)

CA s.41.

OFT, Leniency in Cartel Cases: A Guide to the Leniency Programme for Cartel Cases under the Competition Act 1998 (OFT, 2001); OFT, The Cartel Offence: Guidance on the issue of no-action letters for individuals (OFT, 2003).

EA s.188.

EA s.190(4).

OFT, The Cartel Offence: Guidance on the issue of no-action letters for individuals (OFT, 2003), paras 3.3-3.4.

CA ss.31A-31E.

OFT, Enforcement: incorporating the OFT's guidance as to the circumstances in which it may be appropriate to accept commitments (OFT 407a, April 2004).

EA s.71.

EA s.71(8).

EA s.72.

EA s.73(2).

EA s.74.

EA s.76.

CA ss.12 and 20.

EA Part 2.

EA s.12.

EA s.13.

S. 47A of the Competition Act (inserted by section 18 of the Enterprise Act)

EA s.16.

CA s.49 (as amended by EA Sched 5 para 4).

Section 25(1) Consumer Credit Act 1974 (CCA).

OFT, Consumer credit licences: Guidance for holders and applicants (OFT, December 2003).

CCA s.32.

CCA s.162.

CCA s.164.

EAA s.25.

EAA s.11.

EAA ss.3-4.

EAA s.6.

EAA s.7.

EA Part 8. The OFT is required to publish guidance on the implementation of these provisions, and has done so: OFT, Enforcement of Consumer Protection Legislation: Guidance on Part 8 of the Enterprise Act 2002 (OFT, June 2003).

EA s.211.

EA ss. 211 and 212.

EA s.214.

EA s.216.

EA s.219.

EA s.220.

EA s.11.

OFT, Super-Complaints: Guidance for Designated Bodies (OFT, July 2003).

OFT, Consumer Codes Approval Scheme: Core Criteria and Guidance, (OFT March 2004); OFT, Consumer Codes Approval Scheme (OFT, March 2004).

EA ss.3-4.