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16 Apr 2019 News

Brighter, bolder vision for charities needed

A blog from our Head of Charities Lianne Lodge on the Scottish Government's consultation on charity law reform.

While the Scottish Government’s recent consultation on charity law reform is largely to be welcomed, it appears to have been surprisingly restrained.

The consultation, which closed earlier this month, sought views on a number of proposals – many of which were put forward by the charities regulator OSCR. These included the publishing of annual reports and accounts in full; a public database of charity trustees; and a new requirement for all charities on the Scottish register to have and retain a connection to Scotland.

While many of these proposals could be pushed further, the sector should welcome the opportunity for reform. From discussions with our clients in the third sector around the potential changes, there is general agreement from charities and organisations that governance could be improved and that some of the proposals are far reaching, while others do not go quite far enough.  

Of course, tweaks and exceptions are needed to adapt these ideas for implementation. For instance, the idea of publishing personal details of trustees, could potentially clash with today’s high standards of privacy and data protection.  It may not be sensible to add in another factor which might discourage people from volunteering. It is important to remember that the vast majority of Trustees are volunteers who provide considerable expertise and time commitment but receive no financial reward.

The requirement for a charity registered in Scotland to have a specific Scottish connection has raised concern and would appear at odds with Scotland’s philanthropic tradition. Although, in checking the details, the intention is not to stop Scottish charities from benefitting other parts of the world, but rather to ensure OSCR maintains jurisdiction over them. However, it would be concerning if the consultation’s conclusions seek to go further than these parameters.

There is some good news around extending OSCRs powers in relation to  the reorganisation of certain types of charities which, if implemented, may result in far smoother and cost efficient changes to charities which would avoid the time and expense involved in the current system with Privy Council involvement. 

While an extension to OSCRs powers is positive, there is a balance to be struck. One of the proposals would allow OSCR to make ‘positive directions’ for charities, such as ensuring a charity holds an AGM or takes on new trustees, but unless restricted to specific decisions, full discretion could be an unwelcome game-changer in the sector.

Too much discretion would move the role of OSCR from regulator to manager and while the regulator currently offers an example of good practice, its remit should not be extended to decision-maker. The ability of OSCR to further regulate and direct charities is a positive one, but it should not be given total power; it is important to protect the discretion of trustees.

The things that are causing a stir amongst our interested clients are not only the proposals within the consultation, but also future implications for the wider set-up of the charitable sector which could come as a result.

Since introduction in 2016, the notifiable events procedure has put an onus on charities to inform OSCR when things go wrong. An example of good governance, alerting notifiable events to the regulator can both minimise the effect of problems on the individual charity and the wider sector.

We had expected this procedure would have been pushed further, and been made law, making it mandatory to notify OSCR of instances of fraud, theft, criminal activity, or suspicious funds – which is a logical next step in charity law. The failure to implement any legal requirement leaves a grey area where Trustees are expected to act in a certain way, but have no legal obligation to do so.

The failure to implement any legal requirement leaves a grey area where Trustees are expected to act in a certain way, but have no legal obligation to do so.

The consultation also appears to have been created within a vacuum, without acknowledgment of the recent high profile scandals which uncovered instances of exploitation and mismanagement. Surely there are lessons to be learned here, and the introduction of some additional safeguarding measures could ensure that these examples are not repeated.

While the consultation sought views on the list of proposals, it also welcomed wider commentary and represented a major opportunity for the Scottish charitable sector to shape its future.  The challenge is now for the Scottish Government to decide whether it would like to continue tinkering at the edges, or whether it will challenge the sector, continue its bold progress to date and lead the way in charity regulation.  

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