Too much regulation is strangling charities, warn law firms

09 Oct 2018 News

Charities are facing increasing regulatory demands which is making it more difficult to do their job, sector law firms have warned.

Speaking to Charity Finance magazine, lawyers have said the growing regulatory compliance obligations on charities have become overwhelming and threaten many organisations’ long-term sustainability.

Con Alexander, partner at VWV, said: “This is in a climate where the availability of funding is already a major and continuing concern, and the long-term sustainability of many charities is under threat.

“We are currently working with a number of charities on restructuring options in the context of concerns around their continued financial viability.

“A continuing frustration is that the current charity law framework often hinders the ability to make strategic changes in these circumstances.”

Alexander said that there is evidence of the Charity Commission being tougher in its approach to regulation, with an increased willingness to use its expanded range of regulatory powers and to be seen to act “like a regulator”.

He said: “Its regulatory fierceness is illustrated in the recovery of £650,000 by an unnamed charity during the course of an inquiry. The recovery was made from trustees who had fallen foul of an unreported case about the scope of the rules of unauthorised benefit.

“The sheer volume of material that trustees are expected to read, know and apply is illustrated by the case report into the Presidents Club, which passes comment on the trustees’ knowledge or application of several of the nine separate pieces of legislation, guidance or voluntary code referred to.”

Meanwhile, Benjamin James, partner and head of charities at McCarthy Denning, said these increasing regulatory burdens put “considerable pressure” on legal suppliers to the sector like his, as charities seek “expert, experienced advice”.

James Evans, partner and head of charities and social enterprise at Tozers, added that the lack of resource at the Charity Commission, particularly in its support and advisory functions, continues to have a major impact on charity legal work.

He said: “There are often very lengthy turnaround times for straightforward consents and orders, and for some new charity registrations, exacerbated by the lack of direct access to case officers.”

Safeguarding requirements

Philip Kirkpatrick, deputy managing partner and head of charity at Bates Wells Braithwaite, said a particular burden for charities was the extension of safeguarding requirements.

In December last year, the Commission updated its safeguarding strategy to make clear that trustees should “take reasonable steps to protect their beneficiaries, and others who come into contact with their charity, from harm”.

Kirkpatrick said: “The extension of safeguarding by the Charity Commission beyond children and vulnerable adults into duty of care issues with staff and anyone the charity comes into contact with is causing confusion about what is required.

“We have set up a peer-to-peer network to discuss some of the most common issues. The interaction of employment law and safeguarding, including duties around references, is also of concern.

He added: “The serious incident reporting regime is continuing to cause real difficulties, particularly in relation to reporting work-based matters as opposed to beneficiary concerns, as well as the duties of funders and partners to report safeguarding matters.”

However, in response, a spokeswoman for the Charity Commission said that there has been no extension to trustees' legal duties concerning safeguarding, "nor have we implied such an extension".

She said Kirkpatrick's comments "do not chime" with the Commission's engagement with charities over the summer; and that the regulator has "not picked up a sense of confusion".

"Most charities understand what are existing legal duties and welcome clarification from us as regulator as to how these play out in the context of keeping people safe."

She said the Commission continues to be concerned about significant underreporting of incidents by charities, as only 1.5 per cent of charities have reported a serious safeguarding incident to the regulator.

Subscribers to Charity Finance can read the full article in the October issue and online here.
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