UK: Scottish Charity Regulator Issues Consultation On Existing Charity Law And Regulation

Last Updated: 18 January 2019
Article by Victoria Simpson

The long awaited consultation on Scottish Charity Law was published on 7 January 2019. This sets out the proposals of the Office of the Scottish Charity Regulator (OSCR) to improve the regulatory framework for charities in Scotland.  The proposals are intended to increase transparency and accountability in order to maintain public trust and confidence in charities and in OSCR.  This follows 'the evolving challenges' faced by the charity sector, in which issues such as safeguarding concerns, governance problems and reputational matters have dominated the headlines.

The proposals set out in the consultation

The terms of the Charities and Trustee Investment (Scotland) Act 2005 (the '2005 Act') allow OSCR to make proposals to the Scottish Ministers on matters relating to its functions. The consultation document also states that "the Scottish Ministers remain open as to what, if any, changes are required to the statutory framework (e.g. the 2005 Act), and will be guided by the consultation responses".  Whether this will provide an opportunity to make other comments on the 2005 Act remains to be seen. 

OSCR's proposals as set out in the consultation document are as follows:-

1. That annual accounts and reports for all charities are published in full on the Scottish Charity Register

  • OSCR currently publish the annual accounts and reports for all charities with an income over £25,000 and for all Scottish Charitable Incorporated Organisations (SCIO's) on the Scottish Charity Register.  This is only around half of the charities on the Register.  The accounts are also redacted, so all personal information such as names of trustees are removed before they can be published.
  • OSCR want to publish accounts for all charities in full, with only signatures being removed.

Our comment

This has been a controversial proposal. Given that the Charity Commission already do this, and that any interested person can request a copy of the latest accounts from any charity, we support this proposal. It will promote full transparency and allow clear benchmarking between charities. 

2. To set up an Internal Charity Trustee Database and an External Trustee Register for use by the general public

OSCR propose establishing two new registers: 

  • An internal database of charity trustees which will include full personal details and date of birth.  It could also include the details of disqualified trustees or trustees who have been removed following an OSCR inquiry.
  • An external public register would include trustee's names (including disqualified or removed trustees) and a principal office or contact address. 

Our comment

OSCR's view is that this information will assist in their compliance, investigation and engagement work. Whilst this may be the case, more clarity is needed on who the internal database will be shared with and in what circumstances. Further reassurance will also be needed on the matter of data security.  We do not consider that providing this information to OSCR and keeping OSCR updated on trustee changes to be onerous for charities.

3. To extend the disqualification criteria for charity trustees

OSCR propose that the disqualification criteria for charity trustees should apply to both charity trustees and also to staff in a senior management position within the charity.

It is also proposed that following recent legislative changes in England and Wales regarding disqualification criteria, that the disqualification criteria set out in the 2005 Act should now also include the following:-

  • Unspent convictions for perjury, perverting the course of justice, misconduct in public office, contempt of court and specified bribery, terrorism and money laundering offences.
  • Individuals subject to terrorist asset freezing orders.
  • Disobedience of specified Charity Commission orders.
  • Individuals subject to notification requirements of part 2 Sexual Offences Act 2003 (or who are on the sex offenders register).
  • Individuals could still apply to OSCR for a waiver from disqualification in terms of the disqualifications currently set out under the 2005 Act.

Our comment

We can see the merit in seeking to extend the disqualification criteria to charity trustees and those in senior management. It also seems sensible for the disqualification criteria to be uniformly applied both north and south of the border.

4. Include power for OSCR to issue positive direction notices to charities

OSCR can currently issue preventative type direction notices, requiring a charity not to take a particular action.  Directions are issued to protect a charity's assets or to correct or prevent misconduct by trustees following an OSCR inquiry. 

It is noted that the Charity Commissions for both England and Wales and for Northern Ireland have wide ranging powers to issue positive directions.  Granting this power would therefore strengthen OSCR's enquiry and enforcement powers. The examples provided include issuing directions to appoint additional trustees (e.g. to form a quorum), to manage a conflict of interest and to take action in accordance with a constitution (e.g. to hold an AGM). 

Failure to comply with a positive direction would be regarded as misconduct in the administration of the charity, resulting in appropriate enforcement action.  OSCR could also publish an inquiry report where a positive direction has been issued.

Our comment

The consultation document notes that to date, the other regulators have used this power sparingly.  The scope of this proposal needs careful consideration, particularly with regard to the extent of the power and discretion it could confer upon OSCR.

5. Power to remove charities from the Scottish Charity Register that persistently fail to submit annual reports and accounts and who may no longer exist

The proposal is to give OSCR a discretionary power to remove any charities that have persistently failed to submit accounts to the Scottish Charity Register. 

  • Where charities currently fail to do so, or have ceased to exist and haven't told OSCR, it is difficult for OSCR to take action if they do not have current contact details.  For example, OSCR cannot use their inquiry powers or their power to appoint someone to prepare accounts for a charity if they cannot make contact.
  • OSCR could also be given a power of positive direction to enable them to direct a charity to prepare accounts.  Failure to comply would be regarded as misconduct.

Our comment

This proposal seems sensible and the only option open to OSCR if there is no means of contacting a charity.  Once again however, careful consideration would need to be given to the way in which OSCR can exercise its discretion within this power.

6. That all charities on the Scottish Charity Register should have and retain a connection in Scotland

Under this proposal, cross border charities that are registered with the Charity Commission for England and Wales can continue to register with OSCR as before. 

  • The proposal suggests that charities which are established outside of Scotland, that are managed or controlled wholly or mainly outside Scotland, that don't occupy any land or premises in Scotland and which don't carry out any activities or have any shops in Scotland, should no longer be entered onto the Scottish Charity Register.

Our comment

We are aware of the potential regulatory difficulties that can be caused by such bodies and can see the merit in exploring this proposal further.

7. That OSCR can make inquiries into former charities and their former trustees

  • OSCR does not currently have the power to make inquiries into a body which is no longer a charity, or which has ceased to exist as a charity, or which is no longer controlled by a charity.  This means that OSCR cannot make an inquiry into the body if it later appears that there was misconduct while that body was a charity.  This is what is now proposed.
  • The current framework means that OSCR cannot collect the evidence it needs to make an application to the Court of Session to disqualify the individuals who were former charity trustees from being a charity trustee again.  This means that such individuals can become charity trustees of other charities. 

Our comment

We believe that this will be a helpful power for OSCR to have, where there appear to be sufficient grounds for an inquiry to be carried out. 

8. New proposals for dealing with the assets of former registered charities

  • Any charity can request that OSCR can remove it from the Scottish Charity Register.  If so, all assets that it holds at the removal date will continue to be subject to OSCR monitoring.  The body must continue to submit annual accounts to OSCR for these assets only, and use the assets for its former charitable purposes until spent. 
  • There is no requirement however for these assets to be used in a way that provides public benefit.  This could potentially allow assets to be used for private gain. 

Our comment

It has long been recognised that bodies that choose to come off the Charity Register in this way are restricted. Continuing to report to OSCR can be burdensome.  We agree, however, that assets that were charitable assets must remain broadly accountable and therefore support this proposal. 

9. Increasing OSCR's inquiry powers

  • Currently, OSCR can only require third parties to provide information under its inquiry powers in connection with an existing charity.  Notice of the information request must also be given to the charity at the same time.  The 2005 Act does not take account of bodies or individuals that have been misrepresenting themselves as being a charity, bodies which are no longer charities in respect of their pre-removal charitable assets, and the former trustees of charities which no longer exist.
  • OSCR propose that they should be able to request information from third parties in this situation, and be able to serve notice on the bodies/former trustees identified above.
  • OSCR also seek clarity on the notice periods for serving and responding to such notices under the 2005 Act.

Our comment

We welcome this proposal. 

10.  To extend the reorganisation provisions to bodies established under Royal Charter, Warrant or Enactment

The proposal seeks to clarify that the reorganisation provisions set out in the 2005 Act do apply to bodies set up under royal charter, warrant or enactment. 

Our comment

We fully support this proposal. This should save the charities concerned considerable expense and time where they are currently required to amend their constitution via the Privy Council or by a private bill. 

Conclusion

The consultation document may have come as a disappointment to those in the sector who have long been pressing for the 2005 Act to be properly reviewed and updated.  The proposals primarily focus on the needs identified by OSCR and if approved, will result in considerably enhanced regulatory powers. As stated above, it would appear that there may still be scope for interested parties to comment on their other concerns about the 2005 Act.  Whether or not any such issues can be properly considered within the scope of this consultation remains to be seen. In the meantime, the proposals set out above will go a long way towards increasing transparency and accountability within the charity sector and we welcome them and the discussion that will follow. We will provide a further update once the consultation results are published.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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