Posted: 30/11/2022
This article was originally published on 30 November 2022. It has since been updated to reflect recent developments in this case.
The Charity Commission’s regulatory role has been thrown into the media spotlight recently, with the regulatory compliance case opened into the trans rights charity, Mermaids, which has now been escalated into a statutory inquiry.
So how does the Commission actually carry out its regulatory role? While this article cannot look at the entirety of charity compliance, there are two regulatory processes that are applicable in light of recent news, namely:
Any charity, whether registered or not, and including excepted charities, comes under the regulatory framework of the Commission. Exempt charities can also find themselves facing Charity Commission compliance at the request of their primary regulator.
What is it?
In short, it is the Commission exercising its regulatory muscle to take a closer look at the management of a specific charity. In their day-to-day work, charities are required to give effect to their purposes in compliance with the relevant laws; the allegations against Mermaids that led to the regulatory compliance case relate to alleged breaches of safeguarding legislation.
Should a concern be raised that any given charity is not complying with the law, then a regulatory compliance case is often the first step to be taken by the Commission in looking into the affairs and management of the charity in question. Concerns can be raised by anyone, including members of the public, Members of Parliament, other organisations or charities.
What is the process?
Once a concern is raised, the Charity Commission will initially review it and determine whether the concern is something that falls within its regulatory framework. If so, then there will usually be an information gathering stage. In the Mermaids case, for example, this is how the regulatory compliance case started, with a letter being issued to the trustees of the charity, requesting further information.
While this particular case has been made public, it is not the Commission’s policy to announce regulatory compliance cases as a matter of course; although, it is not without precedent, where the Commission feels that it is in the public interest to do so.
The Commission has wide powers to request and gather information, including the power to require documents and information to be produced. Where this information is held or controlled by third parties, then a court order may be needed to secure disclosure. In the case of other regulators, such as the Information Commissioner’s Office, there are memoranda of understanding in place to facilitate information sharing in these circumstances.
Do charities have to cooperate?
Bluntly, yes. Whether there is wrongdoing established or not, failure to cooperate with the Commission can result in sanctions, especially if a court order is obtained for disclosure and this is not complied with promptly. This is not the time for burying your head in the sand as a charity trustee.
What powers does the Charity Commission have?
Ultimately, if wrongdoing in the form of misconduct or mismanagement is found, or there is non-cooperation with a compliance case, the Commission has several sanctions that give teeth to its general regulatory compliance role, including:
What is it?
The Commission can open a statutory inquiry without having first opened a regulatory compliance case. This may be done in cases where serious misconduct, abuse or criminality is alleged. This gives it wider-ranging investigative powers which can only be exercised under the statutory inquiry framework.
What is the process?
Again, a statutory inquiry can be the immediate result of concerns raised about a specific charity, where the Commission deems those concerns to be sufficiently serious. As outlined above, a statutory inquiry can also result from non-cooperation with a regulatory compliance case, or following an adverse finding against a charity in a regulatory compliance case. . It is the latter which appears to be the case with Mermaids, where the trustees have co-operated with the regulatory compliance case, but their answers to the Commission have revealed further regulatory concerns. Since June 2014, the Commission will now, as a matter of course, announce publicly that a statutory inquiry has been opened.
The Commission may then use its investigative powers to require documents to be produced, and witness statements to be given, including requiring that statements be made under oath or documents verified by declaration of truth.
Do charities have to cooperate?
Again, yes. This is a far more serious process than a regulatory compliance case, although neither should be treated lightly. However, in the course of a statutory inquiry, should the Commission believe that documents or information requested will not be provided or will be destroyed, they may obtain a warrant to enter premises to seize those documents and/or electronic information.
What powers does the Charity Commission have?
The Commission still has all of the powers set out above under the general regulatory framework. However, opening a statutory inquiry gives these further bite, and, in particular, failure to comply with an official warning or an order/direction of the Commission, or a failure to remedy any other misconduct or mismanagement of the charity, gives the Commission further powers.
These include temporary protective powers, designed to protect charities while they are being investigated, which allow the Commission to suspend or appoint trustees, to transfer property to the official custodian for charities, to place restrictions on transactions that may be carried out without Commission approval, and to generally make orders to preserve the assets of the charity in question. In these circumstances, it is common for the Commission to appoint an interim manager to work with, or in the place of, the charity’s trustees.
While these powers are wide-ranging and constitute a serious intervention by the Commission in the day-to-day affairs of the charity, they can be exercised with the intention that the charity may, eventually, take over the running of its own affairs again.
In addition to temporary powers, the Commission also has powers to ensure the long-term resolution of issues identified in the course of a statutory inquiry. Some of these powers relate to individuals, such as disqualifying charity trustees, or removing employees and members. Others allow the Commission to intervene in the administration of a charity and ultimately order that a charity be wound up, and any assets be transferred to another charity with similar purposes.
Charities can object to the Commission exercising its powers and some charities have been successful in doing so. This would require an application to court, either by appealing a court action brought by the Commission, or by a stand-alone application to the First-tier Tribunal. In the case of Mermaids, the charity trustees have issued a statement that they intend to fully comply with the Commission’s inquiry and there is no indication at the time of writing that they intend to object.
It is important for upholding public confidence in charities that the Commission has the powers to look into the affairs of a charity where misconduct or mismanagement is alleged. By their very nature, charities often fulfil the role of talisman for groups of people with specific beliefs, be that the importance of protecting wildlife, the environment, human rights, and many other causes held to be in the public interest.
Inevitably, there will be times when charities come into conflict with one another, whether that be due to differing views on how to carry out their public benefit or, in the case of much of the publicity surrounding Mermaids, due to balancing rights of different groups of people protected under equalities legislation.
It is important at this stage to separate the compliance case opened into Mermaids from its First-tier Tribunal case against the LGB Alliance. While the timing of the compliance case is likely no coincidence in one way or another, they deal with entirely separate issues.
Ultimately, the Charity Commission must give primacy to the charitable purposes of any given charity, rather than the continued existence of that charity. How a specific charity carries out its purposes is the subject of regulatory control, and a decision by the Commission that the trustees, employees or agents of a specific charity are not acting within the regulatory framework is not the same as a decision that the purposes are not charitable, nor that they should not be pursued. It will often, in fact, result in those same charitable purposes being pursued by a different organisation.
As is unfortunately quite common, in the harsh glare of the media spotlight, these elements of nuance are often lost.
© 2024 Penningtons Manches Cooper LLP.
All rights reserved.
Website design by Frontmedia / Dynamic Pear
Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.
Return to news headlines 