Charity law reform – are we any closer?

"We will continue to work with OSCR to establish the practical implications of the proposals on the organisation and publish next steps before the end of the year"

Scottish Government website 22 June 2021

As we move towards the end of 2021, it is difficult to believe that we still await any firm outcome of a consultation by the Scottish Government on proposals to amend the current law with a view to strengthening the system to ensure public trust and confidence in the charities sector. We have been following developments with great interest: we reported on the initial consultation back in 2019; and provided commentary on the analysis of the responses to that consultation. In light of the responses to the initial consultation, the Scottish Government identified several areas where further discussion was needed before a formal position could be taken on next steps, which led to a follow-up engagement process running from December 2020 to February 2021. The main themes emerging from that process have now been published and will now be used by the Scottish Government to publish its proposals to reform Charity Law.

What has been said?

Many of the responses to the engagement process echoed those identified in the results. That said it is important to note the points highlighted in the engagement process that would need to be kept in mind for any future changes to Charity Law:

1. Dispensation to full publication of annual reports and accounts for all charities on the Scottish Charity Register

Broadly, there was significant support to no dispensation to full annual reports and accounts publication (with no redaction) with a view to promoting trust and transparency in the sector. The engagement process did identify that if dispensation was available to publishing full annual reports and accounts, it should only be in "exceptional circumstances" e.g., individual / personal safety provided that: (i) guidance on dispensation was made available; (ii) the process for requesting it was "widely publicised, transparent and clear"; and (iii) that any documentation ultimately published could be understood by the reader. 

2. An internal database and external register of charity trustees

The engagement process identified a body of opinion that any information held on an internal database by OSCR should be held for a specific purpose, and there should be clarity on what information is deemed "essential" for OSCR's purposes. There is support for an internal database holding personal details of trustees (name, date of birth, home address, email address) and the names of trustees removed as a trustee following an inquiry by OSCR under the Charities and Trustee Investment (Scotland) Act 2005 (the "2005 Act") or preceding legislation. Furthermore, an internal database would need to be kept up-to-date and many believed that would be best served via Trustee Annual Return updates (with charities having the option of providing updates throughout / at certain points of the year via OSCR's online system).

There is strong support for a redacted public register of trustees with the information available being limited e.g., trustee names and principal office / trustee contact address. That said the initial consultation identified a need for safeguards to be implemented to guard against privacy breaches and fraud. The majority view is that there may be circumstances where there should be an exception to being included in a public list of charity trustees. Again, the process for applying for such an exception should be clear and widely publicised.

3. Power to issue positive directions to charities

There has been a concern that OSCR's lack of power under the 2005 Act to issue positive directions to charities hampers its ability to regulate the charities sector. The engagement process identified support for such a power being granted to OSCR, provided that such a power was used appropriately. Furthermore, such a power would need to be subject to certain limits in:

• not being used to impact the day-to-day management of charities;
• not applied to Designated Religious Charities, provided they evidence the presence of the necessary infrastructure to exempt them from OSCR's oversight under the 2005 Act; and
• not being applied to colleges where the appointment to their boards is at the direction of Ministers (requiring education legislation to precede charities legislation), necessitating the careful use of any power to issue positive directions, in line with relevant legislation.

4. Charities listed on the Scottish Charities Register (the "Register") and having a link to Scotland

There was majority support for charities to be included on the Register only if they had, and retained, a connection with Scotland. The engagement process identified a need for a charity to have a "demonstrable relationship with Scotland", which was taken to mean that a charity undertook charitable work (amongst other things) in Scotland, for the public benefit or impact on the people of Scotland. There was also reference to an office address or trustee address in Scotland as being strong evidence of a charity having an enduring relationship with Scotland. Notwithstanding the support for it, the engagement process did identify that a physical presence is a "changing notion" in the wake of the COVID-19 pandemic, and certain charities with an international reach may encounter issues in always needing to have a physical presence here before it could be entered onto and remain on the Register.

What next?

The Scottish Government has consulted widely on its proposals to reform Charity Law and now has a wealth of information from which to make substantive proposals to improve the system. It has made clear that the results of the engagement process will now be used "to finalise and publish its proposals for the review of [Charity Law]". While the road has been a long(er) one, the hope is that we will see concrete proposals to reform Charity Law soon. Watch this space!