There has been a great deal of activity in the Scottish charity sphere these past months with new investment guidance launched as well as the Scottish third sector governance code. The most recent announcement is the Scottish Government's 'Consultation on Scottish Charity law' (the Consultation) which poses some important questions with a view to "...maintain and increase, public trust and confidence in the [charities] sector" as "it is more important than ever that charities and trustees operate transparently and are accountable for their actions." In many ways, rather than any radical overhaul, the consultation looks to address certain apparent gaps in the regulatory landscape and OSCR's powers.

The theme of greater accountability and transparency underpins the items being consulted upon now. Some of the issues flow from OSCR's "Targeted Regulation" consultation in 2014 and follow-up approach, on which we have blogged before. Let's turn to the topics under consideration now:

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

Scottish charities are obliged to submit annual reports and accounts to OSCR. However there is no legal requirement for those accounts to be published on the Scottish Charity Register (the Register). OSCR has been making a concerted effort to increase public trust in the charities sector by making an increasing amount of information about charities publicly available. However, the Consultation noted that, in order to comply with data protection law, all personal information provided in charity accounts is redacted by OSCR before publication.

There is a concern that the redaction of personal information from charity accounts could negatively impact their usefulness. The consultation is exploring, in the light of a level of public support for the measure and common practices among other UK charities regulators, whether or not OSCR should be able to publish annual reports and accounts in full for charities. The consultation also considers whether or not some charities or circumstances should have a dispensation from the requirement for full accounts to be available from the Register.

2. An internal database and external register of Charity Trustees

Conscious of the important role played by over 180,000 charity trustees in the management of charities, the consultation invites views on requiring (or empowering) OSCR to create a new register of trustees. The possibility being that both an internal database and external register would be made available with the internal database being purely for OSCR's use, while the external register would be publicly accessible.

The internal register would contain personal information on trustees including names, home addresses and email addresses. The external register would contain trustee names (including removed trustees) and principal office or trustee contact address against each charity entry. The consultation documents sets out that the creation and maintaining of a public register would enhance transparency and accountability to members of the public.

There will need to be clarity on how the information contained in the internal register will be used, and how it will be protected. However, the provision of this information to OSCR by charities is unlikely to be particularly burdensome. It will also assist OSCR in keeping track of the trustee changes. It might be that with 180,000 charity trustees and the fluid nature of the changes of trustees there could be a degree of burden for OSCR in maintaining this information. The consultation also asks whether or not trustees who have been removed following an OSCR inquiry should be made public on the external public register and also circumstances in which there should be a dispensation from being on public register. The consultation document notes that for some the existence of a public register might discourage some from taking up the role of a charity trustee.

3. Criteria for automatic disqualification of charity trustees and individuals employed in senior management positions in charities

Scottish Government is conscious that there are inconsistencies across the UK in respect of the criteria for disqualification and removal of trustees. In Scotland, while specific classes of people are automatically disqualified as trustees, this does not extend to staff that happen to be in senior management roles within charities - unlike in England and Wales. It invites views on whether or not to extend the criteria for disqualification in Scotland to (1) match the criteria in England and Wales and (2) include senior management as well as charity trustees.

It appears laudable to attempt to standardise these protective provisions across the UK where appropriate. Of course, there would be merit in examining how the changes in England and Wales have worked in practice when updating the Scottish provisions.

4. A power to issue positive directions to charities

There is a concern that OSCR does not have the correct tools in order to deal with non-compliance by charities or to protect charitable assets. Most of OSCR's powers are preventative in nature requiring that charity trustees or others do not take particular actions. However, OSCR has no power to issue positive directions to charities - unlike charities regulators in England and Wales and Northern Ireland.

While there should be consideration for how OSCR should effectively use such power, there is an argument that this power would enhance good governance in charities. It could provide public confidence that OSCR has the necessary levers available to direct a charity to take certain actions to protect its assets, further its purposes or support robust governance.

Within the consultation questions, it is asked whether a power to issue positive directions should be set out in specific terms or by giving OSCR wider, more general powers to direct action.

5. Removal of charities from the Register that are persistently failing to submit annual reports and accounts and may no longer exist

Given that a number of charities are noted not to have submitted accounts, or for which OSCR does not have up to date reports and accounts, there is a possibility that the Register is not up-to-date. In instances where information may be lacking this hampers OSCR's ability to carry out this role effectively in policing the activities of charities. This could undermine public confidence and trust in the charities sector and its regulation.

The consultation invites views on whether or not to give OSCR a discretionary power to remove from the Register charities that persistently fail to submit accounts.

An inability to contact charities owing to a lack of information severely inhibits OSCR's ability to carry out certain regulatory functions. The proposal seems like an apt solution to the problem of a lack of information. This power would tie in with having registers of charity trustees to better identify the individuals at a charity that OSCR can contact to make sure the charity is still operating or not and any remedial action that is required to accounts and annual reporting. This item also could benefit from OSCR having powers to positively direct. OSCR could have the power to direct that accounts are prepared, for example.

6. All charities in the Register to have and maintain a connection in Scotland

To be a registered charity in Scotland a body must have wholly charitable purposes and provide public benefit. However, currently there is no legal requirement for the body to have any connection to Scotland (whether that be physically, in the benefit provided, location of assets, location of trustees or any other factor). The consultation document says that if charities have no connection to Scotland it can make it difficult for OSCR to effectively regulate them - OSCR may not be clear on what activities the charity is carrying out and to what extent they are providing a public benefit.

The Consultation proposes a requirement that all charities in the Register must have, and retain, a connection to Scotland.

While this will not preclude the registration of UK cross border charities which will continue to register with charity regulators for England and Wales and OSCR, it would mean that charities established under the laws of a country or territory outside Scotland, which

  1. are managed / controlled wholly or mainly out with Scotland,
  2. do not occupy land or premises, or
  3. do not carry out activities in any shop or similar premises in Scotland

would no longer be able to be entered on the Register.

It might that the country of establishment of the organisation is not the important aspect here. Whether or not it is established in Scotland as a legal entity, those three Scottish connecting elements are perhaps the critical issues. Of course, it perhaps underlines the good standing of the Scottish charities sector and regulation that overseas organisations do seek registration here. Any new rules would also not want to put off genuinely global charities from being based in Scotland.

7. Enquiries into the former charity trustees of bodies which have ceased to exist and bodies which are no longer charities

While there are legal means to permanently disqualify individuals from being charity trustees, OSCR does not have power to make inquiries into a body which is no longer a charity, a body which is no longer controlled by a charity, or a charity which has ceased to exist. The concern here is that if OSCR is not aware of potential misconduct before a charity ceased to exist, before the charity is removed from the Register, or while a body was controlled by a charity, it cannot open an inquiry if information subsequently comes to light.

The result being that trustees who may be guilty of serious misconduct could continue to be trustees of other charities if the misconduct was only discovered after the charity in question either ceased to exist or is removed from the Register.

The consultation invites views on empowering OSCR to make enquiries into a body which is no longer a charity, a body which is no longer controlled by a charity or a charity which has ceased to exist at any time, to allow them to gather relevant evidence to make an application for permanent disqualification of individual found to be unfit to be trustees. The aim being to plug a gap in OSCR's powers to investigate misconduct at a charity and enable action to be taken against charity trustees notwithstanding the charity is no longer on the Register or exists.

8. De-registered charities' assets and public benefit

A sensible tidy up here, it seems. Currently, if a charity is removed from the Register but continues operations as a non-charitable body, it is obliged to use assets it held before it de-registered for the charitable purposes then set out in the Register. There is however an issue in that there is no requirement for 'pre-removal' assets to provide public benefit (which is if course a part of the 'charity test'). Therefore, assets built up over a charity's life could potentially be used for private gain, it is feared.

It might be that the charitable purposes that existed prior to removal from the Register will give enough protection, but this update seems sensible. It ensures that all charitable assets (for that is what those assets were when placed into the charity) are protected and used in the same way (i.e. subject to the charity test).

The consultation notes the potential for a burden on de-registering bodies to have to ensure assets are used to provide public benefit. Again, as these asset were placed into a charitable environment, this burden seems reasonable and wold give the public confidence in the use of assets transferred to a charity. As ever, the detail will need to be considered to make sure any new rules target the mischief.

9. The speed and efficiency of OSCR's powers to gather information when making enquiries

While there are strict controls on how OSCR obtains information on charities from third parties, there is no guidance on how OSCR might secure information on an organisation that is not a charity. This in turn could hinder OSCR in discharging its regulatory function. This relates to:

  • bodies/individuals that are misrepresenting themselves as being a charity;
  • bodies which are no longer charities in respect of pre-removal charitable assets; and
  • former trustees of charities which may no longer exits.

The consultation puts forward empowering OSCR to be able to give notice to these bodies/individuals that information on them is being sought. It also seeks views on clarifying the time periods of serving/responding to notices.

These proposals seem to fill an unhelpful gap in the regulatory landscape and with the usual safeguards on the uses of powers would hopefully help reassure the public that the badge of 'charity' is not being misused or that some charities could put themselves 'beyond the reach of OSCR' by de-registering or ceasing to exist.

The consultation also considers clarifying certain time periods relating to information OSCR seeks from third parties about charities.

10. Reorganisation of charities established under royal charter, warrant or enactment

The Consultation recognises the difficulties faced by charities established under a royal charter, warrant or enactment wishing to amend their constitution. The process known as 'reorganisation' is a way that certain charities can obtain OSCR authority to make changes to their constitution that they would otherwise be unable to make. The charities legislation has ambiguities as to when the OSCR-led 'reorganisation provisions' can be used by a charity established under royal charter, warrant or enactment. The Consultation proposes clarification of the law to make it clear when OSCR can authorise such reorganisations.

What next?

The Consultation presents an opportunity to address a number of issues in the effective regulation of charities in Scotland. Some items for taking forward will require further development in the detail once it is clear there is body of positive views for those in principle proposals. The topics covered in the consultation are, in some ways, technical and aim to give OSCR the tools it needs to protect charitable assets and support the public's confidence and trust in charities.

The Consultation closes on 1 April 2019.


Kevin Winters