Alexis Graham: Changes to charity law must take care not to discourage needed trustees

Alexis Graham is a partner at Dentons.
Alexis Graham is a partner at Dentons.
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The Scottish Government is currently consulting on proposals that entail the largest changes to charity law in more than a decade, and some of the issues around transparency that escaped tightening last time are again on the table.

The consultation, which comes 13 years since introduction of the Charities and Trustee Investment (Scotland) Act 2005, follows proposals put forward by the Scottish charities regulator, OSCR. The plan is to put further emphasis on increasing transparency, accountability and trust and is in response to recent scandals both in the UK and abroad. But this also means more paperwork for charities and unwelcome exposure for some trustees.

As well as introducing stricter accounts publishing rules, such as an obligation to include trustee names, there will be stronger regulatory powers for OSCR itself. While the proposals do seem sensible, further detail is needed on some points before charities can reasonably make their representations. Holyrood must be careful to respect the need by trustees, especially of smaller charities, to retain privacy.

Under OSCR’s proposals, the regulator will get explicit power to publish annual reports and accounts of all charities in full – not just those with an income of at least £25,000, as is currently the case. This will include personal information (but not the signatures) of trustees. OSCR will establish a new register of trustees comprising an internal database for OSCR’s use. There will be a reduced external register for public use. Importantly, this register will include the names of disqualified trustees, although other personal information, such as dates of birth and addresses, will be removed from the public register.

In this age of concern over data use and security, this is a sensitive issue. Previously, concerns were raised about the disclosure of trustees’ names, which potentially discourages people from entering and supporting the sector, with many charities in need of good board-level representation. Although this concern is acknowledged in the consultation, the advantages are seen to outweigh the disadvantages.

It is difficult to say to what extent people are going to be put off helping smaller charities by serving as trustees should personal details be automatically made public. Certainly, being a trustee is not a matter to be taken lightly and the risk of, for example, ending up on a register of those disqualified will have to be added to the list of matters to consider before signing up.

As things stand, those smaller charities affected by this change are left in a position of trying to predict the effect of these rules, so that they can make representations to the consultation accordingly. It is worth noting that charities’ accounts are already published by the Charity Commission.

OSCR also proposes to extend the criteria for automatic disqualification of trustees to match the law in England and Wales and include, for example, automatic disqualification for those listed on the Sex Offenders Register. These criteria will also be extended to those in senior management positions at charities, rather than just trustees, as is presently the case.

Overall, the proposed regime provides more focus on general suitability for the sector.

Alongside these changes, OSCR itself stands to gain significant powers. The regulator’s current powers are preventative – designed to stop specific action being taken. However, it would like the power to direct trustees to take specified positive action, such as the need to appoint additional trustees.

While this seems sensible and positive – a step that would bring Scotland in line with the rest of the UK, more clarity is required on how the powers will be used. Failure to comply will be classed as misconduct, but some directions may be easier to issue than to fulfil.

OSCR also proposes that all charities under its auspices must have and maintain a connection with Scotland. It is not entirely obvious in which circumstances this would arise as an issue, and few Scottish charities are likely to have reason to argue against it. However, it is one of a number of areas in the current proposals where more detail would be useful.

Nothing in OSCR’s proposals seems unreasonable but taken together they do amount to a considerable beefing up of the regulatory regime. While generally it is desirable for watchdogs to have teeth and suitable powers to oversee their industry, the charity sector may require a delicate balance to be struck. Smaller charities in particular should ensure they are aware of the Government’s proposals and make their views known accordingly.

Alexis Graham is a partner at 
Dentons