Legal Review: Changes challenge Scotland’s charities

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Data protection and Brexit top the concerns for the third sector

A raft of changes – and challenges – in the charity sector has resulted in clients turning to law firms for advice and reassurance as they try to navigate through choppy waters.

The introduction of notifiable events, the Scottish Fundraising Standards Panel, lobbying changes, the common reporting standard (which affects charitable trusts) and the new General Data Protection Regulation (GDPR) coming into force in May 2018 are keeping lawyers busy as they seek to ensure trustees and employees of charitable organisations feel confident in fulfilling their duties.

Overshadowing all of those changes is Brexit.

“There is a lot of reassurance required in the sector because there have been so many changes,” says Lianne Lodge, head of Gillespie Macandrew’s charity and not-for-profit team.

“It’s about making sure that trustees and employees know what they need to do and how it will work for them.”

Gillespie Macandrew has been running seminars on data protection to prepare clients for the new regulation.

“It’s really just about encouraging charities to get all their ducks in a line before the new GDPR comes into force in May,” says Lodge.

“It’s just such a difficult time for charities and I think that is having a knock-on effect on the recruitment of trustees.”

For the most part, that’s impacting smaller charities where they don’t have the recognisable name to attract support.

“If we can provide advice on any issues, [trustees] can go and be part of the sector and enjoy being in it,” she adds.

With high penalties set to reprimand charities in breach of the GDPR, now is the time to prepare for the changes ahead.

“There is a lot of information out there but you need to know where to look for it,” says Lodge.

“The first headline where things go wrong is, I think, what will focus people’s minds.

“We are doing a lot of work with our clients before then to make sure they are not the headline.”

Gavin McEwan, head of Turcan Connell’s charity law team, also highlights data protection as a central issue.

“Typically, charities hold a lot of personal data so questions about whether that data can be released to third parties come up a lot,” says McEwan.

“We are also asked quite a lot whether charities have consent to use data in particular ways and the security of data is a big issue that has cropped up a few times for charities over the last year.

“The Information Commissioner has, and will have, a lot more power to penalise charities which breach the data protection rules.”

McEwan advises thoroughly reviewing procedures and looking carefully at all available guidance from the Information Commissioner’s Office.

Another area that has been keeping the Turcan Connell team busy is restricted funds.

McEwan explains: “Charities that hold restricted funds, whether they are donations or legacies with conditions attached, are looking at whether they can relax or remove some of those conditions so they can free up those funds for charitable use.

“Charities have to look at whether they can fulfil the conditions which attach to their restricted funds. If they can’t, they can go to OSCR [the Scottish charity regulator] to have overly restrictive conditions either removed or relaxed.”

Changes and challenges aside, there are plenty of positives in the charity sector, including the emergence of what Alan Eccles, partner in the private client department at Brodies, describes as “mission-focused” organisations.

He says: “Across a range of areas such as the health sector and life sciences, organisations are being able to do really exciting things that they would have struggled to do as purely asset-locked organisations.

“Having that mission focus is taking social enterprise to the next level and getting more people involved who otherwise wouldn’t have been able to support those organisations, and see new events and programmes to showcase and encourage pitching.”

Eccles names Social Investment Scotland as an example of an organisation that is active in this area, having recently organised a Pitch for Purpose event.

“We are also continuing to see a good number of new philanthropists coming through,” says Eccles. “They are wanting to give in a way in which they are quite clear about what they want to achieve.

“They have a much more engaged relationship with the charities and causes they are supporting.

“It’s not just about writing a cheque – they actually want to engage with and understand what a charity is doing, which adds much more than just cash.

“This is the engaged, entrepreneurial philanthropist.”

It’s a side of the sector which Lodge also describes as “thriving”. She says: “We continue to see a growing trend of successful business people looking to give back or invest socially where it’s about the benefit to the community.”

The concept of philanthropy may be nothing new but there has been a shift in how it is being delivered.

Where historically wealthy families would set up a trust in their name with an endowment fund which would go on forever, paying out interest and protecting capital, there has been a move towards self-made wealthy families, who don’t want their name associated with their charitable work, looking to give back.

“It’s a lovely sector to be involved in and we are lucky in Scotland to have such a tradition of philanthropy,” says Lodge.

Back to Brexit and Lodge says we are “in the eye of the storm”. She adds: “Last year there was a great deal of concern about Brexit. This year it’s still there but it’s a case of wait and see what happens.”

McEwan says the political situation is likely to affect some charities more than others: “The areas where we are seeing most concern are in parts of the sector where there is cross-border work taking place across the EU.

“There is a nervousness that, if there is no free movement of people, then particular areas of cross-border working may not be able to take place as easily.

“The other concern some charities have is that there are some EU sources of funding out there which may not be available to all British charities post-Brexit.

“We don’t know, of course, what the final Brexit deal is going to look like, but these are two of the big anxieties just now for charities.

“It’s a period of great uncertainty.”

This article appeared in the Scotsman’s annual legal review 2017

The Scotsman’s annual legal review looks at some of the most active areas of legal practice in Scotland. Informed by comprehensive data published by Chambers and Partners and Legal 500, the articles give exclusive insight into the work of more than 11,000 practising solicitors and over 460 practising advocates.