THE CHARITIES (PROTECTION AND SOCIAL INVESTMENT) ACT 2016

Update 1819 (27/6/18) covered the Charities (Protection and Social Investment) Act 2016 provisions on disqualification of trustees and senior managers. The other main provisions of the Act – a new power for the Charity Commission to issue official warnings; new rules on some aspects of fundraising; and a new power for many charities to make social investments – have been in effect since 2016 and are belatedly summarised here. 

General resources about the Act
The Charities (Protection and Social Investment) Act 2016, along with very clear and helpful explanatory notes: http://www.legislation.gov.uk/ukpga/2016/4/contents.

"Special focus: Charities (Protection and Social Investment) Act 2016", Bates Wells Braithwaite, summer 2016, 6 pages: Best summary I have found. It was included as an attachment with update 1819. 

OFFICIAL WARNINGS

Since 1 November 2016, the Charity Commission has had a new power under s.1 of the 2016 Act (which inserts a new section 75A into the Charities Act 2011) to issue and publish official warnings to charities or trustees if it believes there has been a breach of trust or duty, or other misconduct or mismanagement. 

The Commission defines breach of trust or duty as acting in breach of the trustees' legal duties, the charity's governing document, specific statutory requirements for trustees as set out in the Charities Act 2011 (such as filing annual returns, reports and accounts), and any other legal duty that applies to the charity or its trustees. It defines misconduct as any act or failure to act that the person committing it knew, or ought to have known, was criminal, unlawful or improper; and mismanagement as any act or failure to act that may cause charitable resources to be misused or the people who benefit from the charity to be put at risk. 

Warnings are used if the Commission believes the harm, or risk of harm, to a charity, its assets (including reputation) or beneficiaries is sufficient to require the Commission to take action, but regulatory advice and guidance alone would not be sufficient to deal with the misconduct or mismanagement, and it would not be proportionate to use the Commission's other powers. The Commission's guidance says it recognises that most trustees are volunteers who sometimes make honest mistakes, and an official warning is unlikely to be issued where the breach, misconduct or mismanagement is technical in nature, such as a breach of administrative provisions in the governing document; it does not demonstrate a repeated course of conduct; the trustees have acted honestly and reasonably and are taking appropriate steps to put matters right and prevent a recurrence; and the loss or risk to the charity or to public trust and confidence in the charity is minimal. 

The Commission will normally give 28 days' notice of its intention to issue a warning. Once issued, the warning may be publicised by the Commission, and although the Commission can amend a withdraw a warning, there is no right of appeal to the charity tribunal. 

The Commission's first official warnings were issued on 3 July 2017 to the National Hereditary Breast Cancer Helpline, and on 24 August 2017 to the Gurdwara Guru Nanak Parkash, a Sikh faith charity in Coventry. For examples of how the Commission used the warning power in these cases, Google <Charity Commission> plus the name of the charity. 

Resources

"Official warnings to charities and trustees: Q and A", Charity Commission, 15/12/16, and link to the Commission's detailed operational guidance for its case officers: https://www.gov.uk/government/publications/official-warnings-to-charities-and-trustees-q-and-a.

"The Charity Commission's new regulatory powers two years on", Bates Wells Braithwaite, p.20 in Charities and social enterprise update, summer 2018:

https://www.bwbllp.com/knowledge/publications/2018/05/15/charity-and-social-enterprise-update-summer/.

Summaries of the Commission's first three warnings under this power: the National Hereditary Breast Cancer Helpline, Gurdwara Guru Nanak Parkash (Coventry), and the Islamic Trust (Maidenhead). In each case, the Commission had previously engaged with the charity, providing an action plan, advice or guidance, but the problems had continued and led to the official warning. For further details of these cases, Google <Charity Commission> plus the name of the organisation. 

FUNDRAISING

S.13 of the 2016 Act amended s.59 of the Charities Act 1992, on commercial fundraising, from 1 November 2016. Since then, commercial participators and professional fundraisers must include terms in any agreements with charities setting out their fundraising standards, how the fundraiser will protect vulnerable people, and how the charity will monitor whether standards are being met. 

From the same date, s.13 of the 2016 Act inserted a new s.162A into the Charities Act 2011, requiring charities which must have an audit – usually those with gross annual income over £1 million – to include a section in their trustees' annual report setting out their approach to fundraising including, in particular, where they use third party commercial fundraisers, and how they protect vulnerable people from undue pressure in their fundraising. 

S.14 of the 2016 Act provides two new reserve powers to regulate fundraising, by enabling the government to require charities to register with the Fundraising Regulator (which at the time of the Act, was being established) and comply with its guidance; and if necessary to make the Charity Commission responsible for regulating fundraising if self-regulation under the Fundraising Regulator fails. 

Resources

"Joint alert about working with third-party fundraisers", Charity Commission/Fundraising Regulator, 8/11/16:

https://www.gov.uk/government/news/regulators-issue-joint-alert-about-working-with-third-party-fundraisers.

"Charity accounting and reporting: The essentials November 2016" (CC15d), Charity Commission:

https://www.gov.uk/government/publications/charity-reporting-and-accounting-the-essentials-november-2016-cc15d.

"Code of fundraising practice: Working with third parties", Fundraising Regulator: https://www.fundraisingregulator.org.uk/4-0-working-third-parties/ 

SOCIAL INVESTMENT

Charities have a general duty to invest in the best interests of their beneficiaries and must generally get the highest return possible, taking into account their need for liquidity and security of funds (financial investment). Charities can also make programme related investments which directly further their objects, even if any financial return is incidental. In its investment guidance (CC14) in October 2011, the Charity Commission confirmed that mixed motive investment - with a view to both directly furthering the charity's purposes and achieving a financial return for the charity – is acceptable. 

S.15 of the 2016 gives a statutory basis to this guidance, giving nearly all charities, since 31 July 2016, a statutory power to make what it calls social investments. Provided such an investment directly furthers the charity's purposes, the financial return does not have to be the highest possible. 

The explanatory notes to the 2016 Act say "the requirement that an act must be done with a view to 'directly' furthering the charity's purposes means that there must be a sufficiently close causal connection between the act done and the charitable good achieved that fits within its express purposes. The purchase by a charity of government bonds with the sole objective of providing an income for the charity would not directly further the purposes of the charity, since the investment has little proximity to the charitable good achieved by spending the income. By contrast, the purchase of shares in a medical research company by a charity for the advancement of medicine could directly further the purposes of the charity because it brings about a charitable good in the form of the work of the company."

Prior to making any social investment, the Act requires trustees to consider whether they should obtain any advice about the proposed investment and should consider the advice they receive. They must satisfy themselves that it is in the interests of the charity to make the social investment, taking into account the expected benefit for the charity both through directly achieving its purposes and obtaining a financial return. The trustees must then review their social investments from time to time. 

S.15 of the 2016 Act inserts new sections 292A, 292B and 292C to the Charities Act 2011. These three sections make up new part 14A of the 2011 Act. The 2016 Act also makes some consequential amendments to the Trustee Act 2000. 

In the 2016 Act and the Charity Commission's guidance, "social investment" refers to investments by a charity, where a charity investis its own funds to obtain a financial return while also directly furthering its charitable purposes. In other contexts, the term social investment may refer to investments into a charity, where the charity obtains funds through loans, bonds or other arrangements, and the investors receive, or hope to receive, a financial return while also supporting the charity. 

Resources

"Charities and investment matters: A guide for trustees" (CC14), Charity Commission, updated 1/8/16: https://www.gov.uk/government/publications/charities-and-investment-matters-a-guide-for-trustees-cc14.

This page also has a link to the Commission's interim guidance on social investment from 1/8/16. 

source sandyadirondack1820 28,06.18