The Charity Commission has today opened an eight-week consultation on proposals to change the schemes that it makes to establish common deposit funds, a popular choice for small charities.

Common deposit funds (CDFs) are deposit-taking schemes that only charities can invest in and they are treated as charitable in law. They accept deposits from charities and pool the money to form a large sum that will then be deposited on the money market. As a pooled and larger sum, the deposit may secure a higher rate of interest for the depositing charities than each charity would otherwise obtain if undertaken separately.

The Commission is revising the schemes that it makes to establish CDFs because of changes to the way that managers of some investment funds, including CDFs, are regulated.

The changes in regulation stem from a European Union Directive, the Alternative Investment Fund Managers Directive (AIFMD) that came into force in July 2011. Each EU member state was required to transpose the AIFMD into national law by 22 July 2013, subject to transitional periods for bringing its provisions into effect.

In particular, the Directive indicates the level of financial regulation considered essential for any alternative investment fund such as a CDF, and it gives the Financial Conduct Authority regulatory responsibility for ensuring that managers of CDFs comply with certain responsibilities.

In light of the new requirements imposed on fund managers by AIFMD, the Commission’s consultation sets out the alterations that it proposes to make to its model schemes to reflect all the relevant changes.

Jane Hobson (pictured), head of policy at the Charity Commission, said: “We know that CDFs are a method of investment that is used by charities and that they have been particularly important to smaller charities that have relatively smaller sums of cash to deposit. It’s important to remember that although we register CDFs, that status is not a 'kitemark' of quality and trustees must make up their own minds about whether to use such investment funds.

"Nonetheless, the Commission has an important role in making sure that charities are kept informed about the changes to regulations so that they have that information when it comes to making a decision. This consultation helps to highlight the changes that are coming.”

More details about the consultation can be found on the Commission’s website. The consultation will end on 1 April 2014.