NCVO Annual Conference 2016

1. Drinks
sponsors:
THE FUTURE OF
CHARITY REGULATION
CHAIR:
ELIZABETH CHAMBERLAIN
POLICY MANAGER, NCVO
SPEAKERS:
LAWRENCE SIMANOWITZ
CHARITY PARTNER, HEAD OF
CULTURE + CREATIVE AND
IP/TRADEMARKS, BWB
SIMON STEEDEN
PARTNER AND HEAD OF
ENVIRONMENT, BWB
Partner sponsor:
Media partner:

2. Introduction – the future of charity regulation
• Background
• Fundraising
• Changing role of the Charity Commission
• Social Investment
• Campaigning
• Grant funding for non-charities
• What’s on the horizon
• Q & A

9. Regulation of fundraising
• Charities (Protection and Social Investment) Act 2016
• Changes to the IoF Code
• New Regulator
• Fundraising Preference Service
• Data Protection

10. Charities Act 2016 – Fundraising (1)
• [Social investment and new powers for the Charity Commission]
• No date yet for coming into force
• Reserve power to control fundraising

11. Charities Act 2016 – Fundraising (2)
• S.13 Fundraising agreement with PFs and CPs must include
 details of voluntary fundraising scheme/standards to which the charity
adheres
 details of how the commercial organisation will protect vulnerable
people and others from:
- unreasonable intrusion on privacy
- unreasonably persistent fundraising
- under pressure to donate
 arrangements to enable the charity to monitor compliance with the
agreement
• Failure to comply – the CP or PF is unable to enforce
– charity may be in breach

12. Charities Act 2016 – Fundraising (3)
• Charities which have their annual accounts audited must include the
following in trustees annual report
• The charity’s “approach” to fundraising, especially if a CP or PF was
used
• Details of fundraising scheme/standard which it or its fundraisers have
agreed to and any failures to comply with these
• Whether and how the charity monitored fundraising activities carried
out on its behalf
• How many complaints the charity has received about fundraising
• What the charity has done to protect vulnerable people and others
from unreasonable intrusion or persistence, or undue pressure
• Sanctions are light touch – request to comply, but double defaulters
are investigated

13. Key changes to the IoF Code in the last year
• No knocking on doors with cold calling stickers
• No calling TPS registered number without consent
• Consent needed to share data with any other organisation to use it for
fundraising/marketing purposes, even if data is not sold
• All fundraising communications must include clear single step opt-out
– same size font (or larger) as request for details or donation amount,
if none then the minimum font size 10
• Same required for permission statement
• No more than 3 asks on a phone call

14. Data Protection
EU General Data Protection Regulation
• Data processors now covered by some aspects of the regulations
• New rights for individuals including the right to be forgotten and to
object to processing
• Changes to how consent can be obtained
• Potential new permitted ways of exporting data outside of the
European Economic Area
• Wider application to non-EU data controllers
• Notification of some types of security breach now mandatory
• Removal of requirement to register (aka “notify”) with the ICO
• Higher fines
• Some organisations must have a nominated Data Protection Officer

15. New types of organisation caught by the Act
• Currently the DPA only applies to data controllers which are
established in the UK or which use equipment in the UK to process
data
• Under GDPR:
 overseas based organisations caught if offer goods or services (even if
free) to individuals in the EU or if monitor their behaviour
 data processors must implement security measures; notify data
controller of breaches without undue delay; appoint a DPO (where
threshold is reached); seek approval to appoint sub-processors and
transfer data outside of the EEA; allow the data controller to audit and
inspect
• Data Controller must include those obligations in contracts with Data
Processors
• DPs and DCs must keep records of processing activities (Article 28)

16. Notification of security breaches
• Security breach is when data is lost or accidentally damaged or
destroyed, or accessed without authority
• Currently not mandatory (but recommend if serious – i.e. major impact
– quantitatively or qualitatively)
• Under GDPR must notify ICO within 72 hours if there is likely to be
risk to the rights of individuals (Article 31)
• Must notify the individuals if there is likely to be a high risk to the
rights of individuals (Article 32)

17. Consent (1)
• Currently consent must be freely given, specific and informed and the
ICO guidance says an “active communication” is required
• GDPR adds that:
 the consent must be unambiguous and must be given by means of a
statement or clear affirmation action (Article 4(8))
 consent may be indicated by ticking a box on a website or by a statement
which clearly indicates an individual’s acceptance, including a pre-
formulated statement (recitals 25 & 32)

18. Consent (2)
• The individual must have free choice and be able to withdraw consent
without detriment. Consent not freely given if mandatory to give
consent in order to obtain performance of a contract when the consent
relates to something else (recital 34)
• Separate consent must be given for different processing operations
(e.g. fundraising, policy campaigns?)
• Children cannot consent if under 13, can consent with parental
approval up to 16 (unless law says otherwise), fresh consent needed
once reach 16
• Pre-ticked boxes (or silence/inactivity) does not constitute consent –
see next slide

19. Other changes
• Fines will be up to the higher of 2% of worldwide turnover or £10m for
less serious breaches and 4% or £20m for more serious breaches
(Article 79)
• Organisations must appoint a suitably qualified data protection officer
if they undertake largescale monitoring of individuals or process large
amounts of sensitive personal data
• Export of data outside of the EEA is subject to the same restrictions
but there are possibilities in the future of exporting in line with
approved codes of conduct, certification by an experienced
independent certification body or under contract clauses approved by
the ICO

20. The ICO’s view
Undertakings
• Fresh consent every two years for telephone fundraising
• “opt-in” consent model for live telephone marketing (i.e. consent
based model)
Unsettled issues
• Cold calling needs to be explicitly explained in advance
• Guidance on direct marketing – consent required by charities to share
data for marketing purposes

21. New Fundraising Regulator
• FRSB will be replaced
• Fundraising Regulator to start operating Summer 2016, chaired by
Lord Michael Grade
• Will take over the IOF Codes
• Funded through levy (app £1,000 pa) on charities with more than
£100,000 annual fundraising spend (not mandatory)
Sanctions
• Name and shame
• Require charities and fundraisers to cease and desist, including
against non members
• Red flag on Charity Regulator’s website
• Charity regulator may follow up with investigation

22. Fundraising Preference Service
• Still at proposal stage
• Individuals will have the right to be registered, permanently, on a “do
not contact” list covering: addressed mail, telephone, texts and email
• Default position – will cover all charities with income over £1 million
even when there is a pre-existing relationship
• Mandatory compliance
• Trustees’ duty to act in the [best] interests of their charitable purposes
• Cost of using FPS uncertain

23. Increased Regulation by the Charity Commission
• Statutory Inquiries – UP: 2010-2011 – 3
2013-2014 – 64
2014-2015 – 103
(main grounds were accounting issues and
misconduct/mismanagement)
• Operations compliance cases – DOWN (slightly)
• Compliance orders and directions issued – UP:
2010-2011 – 208
2013-2014 – 740
2014-2015 – 1,700

24. 2016 Act – Charity Commission Powers
• Longer list of offences leading to automatic disqualification of trustees
(formerly dishonesty offences and company law-related issues only.
Now includes terrorism and sex offenders)
• Charity Commission powers to suspend and disqualify trustees,
including on grounds of past or continuing conduct which may be
damaging to public trust and confidence in charities
• This leads to disqualification from holding a senior management
position in a charity
• Power to issue official warning to charity or trustee(s) (and to publicise
it) for misconduct, mismanagement or breach of trust or duty
• No minimum notice (minister has said normally at least 14 days)
• No right of appeal
• Notice must say what Commission believes should be done to rectify
the position

25. Charity Commission Guidance
CC3
− “The Essential Trustee” revised and published July 2015 – Trustees
expected to follow guidance: 6 key duties
− Ensure charity is carrying out its purposes for the public benefit
− Comply with the charity’s governing document and the law
− Act in the charity’s [best] interests
− Manage your charity’s resources responsibly
− Act with reasonable skill and care
− Ensure the charity is accountable
− “Must” and “should” – elevating non-compliance with good practice to
breach of duty?

26. Charity Commission Guidance
CC19
“Charity Reserves” – reviewed in the light of KidsCo
• Context of a charity with vulnerable beneficiaries where auditors’
recommendations of six months reserves was seen as low priority
• Previous guidance was cautious about reserves, noting obligation on
charities to spend income within reasonable timeframe
• Revised guidance warns trustees to consider the risk of unplanned
closure when preparing their reserves policy
Concerns in the sector that this could lead to a diversion away from
achieving charity’s purposes
Guidance will be fully reviewed by the Charity Commission later

27. Regulation of social investment
• Charities (Protection and Social Investment) Act 2016
• Implements a Law Commission recommendation on social investment
• A statutory power to do social investment
• Allows charities, including incorporated and unincorporated, but not
those created by statute or Royal Charter, to invest
“with a view to both (a) directly furthering the charity’s purposes; and
(b) achieving a financial return for the charity”.
• Intention to remove uncertainty over the ability of charities to make
social investments – and particularly “mixed-motive” investments

28. How might the new power be used?
• The full spectrum of social investments is permitted
• Where trustees consider investment to be in the interests of a charity
• Primarily financial, or for primarily social, reasons
• A combination of mission benefit and financial return - no minimum
degree of mission benefit before the power is engaged
• Charity’s purposes need not be advanced on an exclusive basis
• Investments made using the power will not have to be restricted for
the investor’s objects
• To use Lord Bridges’ example from the Hansard debates…

29. Example: purposes need not be exclusively advanced
“A charity might have the care of horses as its charitable purpose. It may
wish to invest in a horse and donkey social enterprise, which provides
joint facilities for both. The social enterprise may also expect to make a
financial return, perhaps from charging visitors. Having weighed the
benefits to horses along with the expected risk-adjusted financial return,
the horse charity is able to invest in the horse and donkey social
enterprise. So long as the trustees have satisfied themselves that the
combination of expected financial return and mission benefit in relation to
horses is appropriate, this is covered under the social investment power.”

30. How should trustees choose to use the power?
• Clause 15, s292c(2)(c) imposes duties on charity trustees
• Trustees must “satisfy themselves that it is in the interests of the
charity to make the social investment, having regard to the benefit they
expect it to achieve for the charity…”
• Balancing act for trustees between mission benefit and financial return
– but no need to quantify each in making a precise calculation
• The power can be excluded by express constitutional provision
• Does not apply to the use of assets held as permanent endowment
• Charity Commission will need to revise CC14 and HMRC to revise
guidance on approved investments

31. Charities and ethical investment
• Developing area
• Settled law on ethical investment by charities
– Harries v The Church Commissioners for England – 1992
– Challenge - investment policy of the Church Commissioners
– Exercise of investment power - the starting point for charity trustees is to
seek the best possible financial return from an investment…
– Whilst having regard to the need to manage risk
– But charities are different to other fiduciaries
– It is axiomatic that investment powers are used to advance objects
• Application to modern context – e.g. fossil fuel divestment?

32. Fossil fuel divestment – Divest Invest
• Divest Invest - Global grassroots movement - combat climate change
• Now more than 700 institutions/individuals
• Over $50 Billion in commitments
• Climate change - accepted understanding is rapidly changing
• The role of finance in contributing to climate risk
• European Leader Divest Invest - Sainsbury Family Charitable Trusts
• Christopher McCall QC opinion on charity investment duties

33. Divestment – financial implications
• Climate science has changed since the Bishop of Oxford case
• Evidence carbon-intensive investments damage environment
• Financial implications for carbon intensive assets
– greater risk of policy change and regulatory risk
– therefore may be financial disadvantageous due to supposed element of
mispricing in market or decline in market appetite
– potential financial risks – if well founded - are of such magnitude that they
should be considered by any prudent trustee/fiduciary.
– Trustees and fiduciaries must seek advice – diversification

34. Divestment – ‘mission’ implications
• Trustees should also divest where conflict with the charity’s purposes,
regardless of the financial consequences
• Ultimately it is for trustees to decide if a conflict exists
• It is at least arguable that investments in carbon intensive assets are
irreconcilable with charities with:
– general or specific environmental purposes;
– general health purposes;
– general poverty purposes; and
– other purposes – consequences of dangerous climate change – concern

35. Charity campaigning
• The Lobbying Act and Lord Hodgson’s review
• 2016 elections and the EU referendum
• Anti-advocacy clauses in public sector grants and contracts

36. Part 2 of The Transparency of Lobbying, Non-party
Campaigning and Trade Union Administration Act 2014
• “Lobbying Act” - Amended Part 6 of the Political Parties, Elections and
Referendums Act 2000
• Expanded controls on third party campaigner spending ahead of
elections
• Expanded categories of spending that may be regulated if (broadly)
intent to influence an electoral outcome can reasonably be inferred
• Regulation includes:
– Spending threshold for registration with Electoral Commission
– Overall limits on controlled spending
– Reporting requirements

37. Sector concern – interesting alliances …

38. Lord Hodgson’s post-election review
• Section 39 Lobbying Act required a review of the operation of Part 6
PPERA in relation to “the first relevant parliamentary general election”
(May 2015)
• Reviewer to be appointed within 12 months of Royal Assent on 30
January 2014
• Lord Hodgson appointed 28 January 2015
• Report to be laid before Parliament within 18 months after the May
2015 general election.
• Report published on 17 March 2016

39. Arguments against regulating third parties
• Disproportionate burden on small organisations
• Deterring legitimate campaigning activity at election time
• “Concern about dual regulation of those third parties which are
charities, since they are already subject to regulation by charity
law”
• “Some third parties may be spending money in order to raise
debate on an issue which just happens to be identified with a
party or candidate (or perhaps an issue which comes to the fore
during an election campaign) rather than specifically to
influence voters for or against a particular party or candidate”

40. Test of regulated spending under Part 6 PPERA
Purpose test = spending that can “reasonably be regarded as intended to
promote or procure the electoral success at any relevant election” for –
i) One or more particular registered parties
ii) One or more registered parties who advocate [or do not advocate] particular
policies[...]
iii) Candidates who hold [or do not hold] particular opinions or who advocate [or
do not advocate] particular policies[...]
(s.85(2) PPERA)
Objective test Would a reasonable person regard the spending /
activity as intended to influence voter choice?
• Spending must also be on specified activities (activity test)
• And directed toward public (public test)

41. Lord Hodgson’s proposals
• Include proposal to move from objective purpose test to subjective test
• Would mean charities could no longer incur regulated expenditure or
register with Electoral Commission, as cannot intend to support
parties/candidates
• Similar to test in Representation of the People Act 1983 for local
campaigns:
• Spending “with a view to promoting or procuring … the election of a
candidate [or registered political party for GLA elections]”
• PPERA Part 7 – referendum campaigns:
• Spending “with a view to promoting or procuring … a particular
outcome [in a referendum] or otherwise in connection with promoting or
procuring any such outcome”
Part 7 PPERA and RPA = subjective tests What was the
actual intention of the person incurring the spending?

42. Elections 2016
• Northern Ireland Assembly
• National Assembly for Wales
• Scottish Parliament
• London Assembly
• Mayor of London
• English local government
• Local mayoral elections
• Police and Crime Commissioner (England and Wales)
• and a referendum …

43. EU Referendum 23 June 2016

44. More interesting alliances...

45. Referendum campaigning: election law
• Legislation: part 7 PPERA + EU Referendum Act
Must register as a ‘permitted participant’ if spend over £10,000
“with a view to promoting or procuring a particular outcome or otherwise
in connection with promoting or procuring any such outcome.”
• Registration available since 1 February 2016
• Must specify outcome you are supporting
Controls on spending and donations
Detailed reporting requirements
Rules on campaign material
Maximum spend £700,000

46. Referendum campaigning: charity law
• New Charity Commission guidance issued March 2016 – quickly
revised – asks:
– Does political activity support, and is it incidental to, the charity’s
purposes?
– Are any conflicts of interest and other risks properly managed?
– Are decisions to engage properly recorded?
– Is there transparency about EU funding?
• Written record should be maintained of:
– How the action furthers and supports charitable purposes
– Why the activity is in the best interests of the charity
– The risks involved (including reputational risk) and how you will avoid
them

47. Anti-advocacy clauses
• February 2016 Govt announced inclusion of anti-advocacy clauses in
grant agreements
• Grant monies not to fund costs of activity intended to influence or
attempt to influence Parliament, Govt, political parties policy,
legislative/regulatory action, awarding/renewal of contracts/grants
• Builds on clause introduced by DCLG in 2015
• Based on a IEA think-tank ‘Sock Puppets’ report
• Criticised as counter productive because:
– Prevent departments seeking important advice and expertise of charities
– Inhibits feedback from frontline
– Charities already subject to constraints on political activity – cannot be
party political
• Govt departments being tasked with working out the detail for their
own departments by 1 May 2016

48. Grants to non-charities
• Draft guidance published by Charity Commission February 2016
• Consultation closed 8 April
• “Organisations that aren’t charities don’t have to deliver public benefit
or stick to charitable objectives … you need to understand the risks
and boundaries”
• “A charity can only make grants for activities that in principle it could
carry out itself”
• “Ensure that the organisation receiving the grant understands your
charity’s purposes and their boundaries”
• Emphasis on due diligence and monitoring, risk assessment, systems
and procedures
• Trustee engagement:
– “Trustees are responsible for deciding what level of scrutiny and
discussion are appropriate in the circumstances”
– “High risk and unusual decisions should not be delegated”

49. Grants to non-charities – core costs
• Guidance states that:
– “a charity can’t give an unrestricted grant to a non-charity”
– “a charity can only allow a grant to cover costs that are directly connected
to carrying out the activities it has agreed to fund”
– “beyond that, a charity can’t fund the ‘core’ costs (or overheads) of a non-
charity”
• Funding of core costs – e.g. office/staff costs - “limited to the
proportion of those costs …. directly linked to delivering the grant…”
– But, core funding can be essential to capacity building?
– Impact on venture philanthropy, incubation of social enterprise and new
models of public benefit
– Non-charitable core costs may be ancillary to charitable costs
– Core costs not the same as overheads?
– Unnecessary inhibition of public benefit?

50. Grants to non-charities – other key risk areas
• Certain purposes, e.g.:
– Promotion of rural/urban regeneration
– Promotion of human rights
– Focus should be on circumstances, not purposes?
• Where intellectual property will be generated
– can be a valuable asset - take steps to protect the charity’s share
• “Plan how you will respond to questions from your staff, volunteers,
members, donors, the public or the media”
• Is the guidance necessary? Already covered by other guidance?
– e.g. CC27 - It’s your decision: charity trustees and decisions making

51. On the horizon – fee charging?
• “The commission’s budget has been reduced by 50% in recent
years….”
• “Adequate and stable funding of the commission is, I believe, the only
way we can achieve an appropriate level of resource to regulate
effectively. We will be, therefore, consulting on the concept of asking
charities to contribute to their regulator.”
• “… we would only seek contribution from larger charities… ”
[William Shawcross, February 2016]
• Existing power to charge for “functions” (s19 CA2011), subject to the
affirmative resolution procedure
• What is within the scope of a “function”?
• Charges for registration, being on register, filings, inspecting register?
• Would charging encourage or discourage, good practice?

52. On the horizon – fee charging? (2)
• Fee charging by the Charity Tribunal
• July 2015 MoJ consultation on further court and tribunal fees
• Government response December 2015 - decision to proceed with
most fees proposed, including for the General Regulatory Chamber,
encompassing the Charity Tribunal
• Proposals include:
– £100 issue fee to start proceedings and have the merits considered
– further £500 to bring the case to an oral hearing
– £2,000 to appeal a tribunal ruling
• Disincentive to bring cases?
• Impact on Charity Commission accountability?

53. Simon Steeden and Lawrence Simanowitz
Tel: 020 7551 7796
Email:
s.steeden@bwbllp.com
l.simanowitz@bwbllp.com
Bates Wells Braithwaite
10 Queen Street Place
London EC4R 1BE
Web: www.bwbllp.com