Sector figures have criticised the Charity Commission’s latest draft guidance about its new official warning powers for not including enough detail about the safeguards and for being “misleading”.
The regulator launched a consultation on Friday and outlined how it plans to use its new power. NCVO, the Charity Finance Group and law firm BWB have this morning said they have concerns about the content of the guidance.
Rosamund McCarthy, partner at charity law firm Bates Wells Braithwaite, said her firm would be asking for the guidance to be “materially revised”.
She said: “I am very concerned that the draft guidance is misleading in a number of respects and does not contain a number of the key assurances given by the minister for civil society during the report stage of the bill - namely that the Charity Commission can only provide ‘advice and guidance to the charity on how it can remedy a breach that has been identified in the warning’ and crucially that ‘failure to follow good practice could not automatically be considered to constitute misconduct or mismanagement’.”
She also criticised the guidance for indicating that the Commission would normally publish details of warnings given, unless there is a reason not to.
McCarthy also predicted an increase in the number of judicial reviews because charities cannot appeal a warning to the Charity Tribunal.
“As lawyers we will be forced to advise clients in receipt of an official warning that if they do not comply, they will run the risk of significant regulatory action by the Commission,” she said
“It is likely that the public issuing of an official warning, will carry far more stigma than an operational compliance case, and thus risk damage to a charity’s reputation, with a potential for the drying up of support and funding.”
Elizabeth Chamberlain, policy manager at NCVO, said: “Our concern has never been with the existence of a warning power but rather the lack of safeguards attached to it. The debate on this matter in Parliament showed that there was widespread concern about this. The proposals outlined here, while giving some further impression of how the power may be used, would continue to give the Commission a very great degree of discretion in how and when it would issue a warning.
“This will do little to provide any reassurance to those who fear the Commission may make unreasonable or arbitrary use of the power, for example in response to an unjustified media story. As it is currently proposed, there is a significant disparity between how easily the warning power could be used by the Commission and the severity of implications it could have for the charity.”
Andrew O’Brien, head of policy and engagement, Charity Finance Group said: “The consultation on the Commission’s warning power still leaves charities none the wiser as to how this power is going to be used and what problems it is trying to solve. The handful of examples given in the consultation give no further clarity and are so low level as to question why the warning was introduced in the first place. There are surely other means that could have been deployed to resolve these low level issues.
“The consultation does highlight, however, a number of continuing concerns about this new power including the short time frame in which charities have to make representations and the public nature of the warnings, with no right to appeal beyond complex and expensive judicial review. The idea that most charities will be capable of bringing together an effective challenge to an official warning in 14 days is deeply worrying.
“There is a real danger that this warning power will be used as regulatory lightning bolts, to crack down on those charities where the Commission doesn’t agree with decisions, but for which there is questionable ground for statutory inquiry. This consultation, which was supposed to give assurance to the sector that this was not going to be the case, has done nothing to ease concerns.”
A Commission spokesman said: “The new warning power will support the Charity Commission in its regulatory work and was given with a clear mandate by Parliament. Our recent Public Trust and Confidence research shows the public expect charities to be more open and transparent and expect the Commission to publish more information on charities. Our draft guidance on publication of official warnings applies the same principles and considerations as already used for publishing reports about our casework and whether publication would be in the public interest.
“The draft guidance makes clear 'Official warnings are different from statutory directions which the commission can only issue after it has opened a statutory inquiry. There are only specific circumstances in which the commission can direct trustees to take (or refrain from) particular action'.
“Our draft guidance and approach follows the provisions of the Act and reflects the discussions held in Parliament and concerns that were raised during the legislative process. The consultation is open and we look forward to hearing from charities, the public and other interested parties in due course.”
