As the UK opens up, it has also been a very busy month in the world of governance!
Charity law reforms
With the assistance of the Charity Law Association, the Law Commission recently published a report to the Government making a number of recommendations for charity law reform. The Government issued its response on 22 March 2021.
The recommendations accepted by the Government include:
- Reviewing the financial thresholds on which charities’ registration, accounting and reporting requirements depend
- Simplifying the processes for charities and Royal Charter charities to amend their governing document
- Introducing thresholds under which donors do not need to be contacted to offer return of their donation
- Simplifying procedures for, and providing assistance to trustees in disposing of charity land
- Simplifying the law around permanent endowments (which is certainly welcomed!)
- Allowing trustees to be remunerated for services, and
- Allowing relatively small ex-gratia payments to be made without Charity Commission approval.
These reforms will be of particular interest to RPs who are either registered charities or have registered charities in their group – and those who manage permanent endowment. It is also hoped that this frees up the Charity Commission to focus on areas posing a higher risk in order to protect the public interest in charities.
Interestingly, the Government did not accept the Law Commission’s recommendation that the definition of ‘connected persons’ should exclude wholly-owned subsidiaries. This will therefore continue to be an area for organisations to carefully navigate where they are, for example, transferring land within their group.
Companies House reforms
Companies House has put forward proposed changes to the way in which it works, to be implemented over the next five years. There is a particular focus on digitalisation and anti-money laundering.
Key changes are as follows:
- Tightening of the verification process and identification for who is setting up, managing and controlling entities by compulsory identity verification for all directors and persons with significant control of UK registered companies, as well as all individuals / agents who file information on behalf of a company.
- Improving the accuracy and usability of data on the Companies House register. The Registrar will have increased power to query information submitted and ultimately remove incorrect information, something that has been a particular criticism of Companies House.
- A move towards the reduction of paper filings including the submission of filing accounts electronically and correcting historic filings.
- Enabling personal information to be removed from the register and genders to be changed.
Consultation: Restoring trust in audit and corporate governance
Closing date: 8 July 2021
BEIS has published a consultation seeking views on proposals to strengthen the UK’s framework for ‘major companies’ and the way they are audited. The definition of who would be captured by the reforms is set to be expanded - the consultation proposes a range of options to amend the definition of ‘Public Interest Entity’, which would potentially expand the number of RPs caught by the definition beyond those with public bonds.
The proposals include:
- Introducing new reporting requirements for directors
- Ensuring there are sufficient enforcement powers to hold directors in breach of their duties to account
- Creating a new stand-alone audit profession
- Requiring companies to publish their approach to auditing through an audit and assurance policy
- Granting additional objectives, functions and powers to a new regulating body, the Audit, Reporting and Governance Authority (ARGA) which would replace the Financial Reporting Council.
Of particular interest are the proposals to strengthen oversight and enforcement powers relating to directors’ duties, with new reporting and attestation requirements covering internal controls and resilience planning.
Even if you aren’t part of a large group, reforms at this scale usually indicate clear trends for governance best practice in the future, so it is worth being aware of these.
Consultation: Responsible Investment Guidance
Closing date: 20 May 2021
The Charity Commission has published a consultation on proposed revisions to its guidance for charities on making investments: Charities and investment matters: a guide for trustees - ’CC14’
This is the result of feedback from trustees that they felt unsure about their power to make ‘responsible’ investments due to lack of clarity within the existing guidance. In particular:
- Perception that trustees have an overriding legal duty to maximise the financial returns when investing, regardless of any other consideration
- Perception that the Commission does not accept that trustees can comply with their duties fully if they adopt a responsible investment approach
- A lack of practical advice within the guidance.
The fundamental principles have not changed, but the guidance is to be updated with revised guidance in clear, simple language and in particular to clarify:
- The duties that trustees have when making financial investments
- The discretion trustees have to decide whether or not to adopt a responsible investment approach.
Whilst clearly trustees are responsible for how they invest their charity’s assets, and it is not for the Commission to tell them what they should do, the proposals are welcomed to ensure that the guidance provides trustees with confidence and assurance as to how to interpret and apply charity law.
Updated Coronavirus (COVID-19) guidance for the charity sector
On 30 March 2021, the flexibilities introduced during the pandemic to enable organisations to hold virtual general meetings came to an end. Where charities have not yet updated their governing documents to enable virtual meetings to be held, the Charity Commission has issued guidance to provide reassurance to charities that they can continue to hold virtual / remote meetings – but they must ensure that the decision to do so is recorded together with the rationale. RPs who do not have this provision with their rules should look to amend them to permit this and follow the Charity Commission guidance in the meantime.
The Charity Commission recently concluded an Inquiry into The Central Gurdwara London Khalsa Jatha investigating concerns about poor internal governance and a trustee dispute.
The Commission determined that the former trustees had failed to fully comply with the action plan which had been issued under section 15(2) of the Charities Act and that the disputes between the former trustees had had a negative impact on the governance and financial management of the charity, amounting to misconduct. The charity’s accounting information had been submitted late for the last five financial years and former trustees regularly acted inappropriately during meetings with several ending with the police being called.
Although clearly this is an extreme case, it is a reminder of the importance of trustees understanding their legal duties and complying with their obligation to act in good faith and only in the best interests of the charity – or face potential personal liability.
In-depth assessment (IDA) survey
The Regulator of Social Housing (RSH) has recently published the results of an independent survey relating to RP’s experiences of IDAs. This indicated that IDAs have been well received by the sector and in many cases have led to positive changes within organisations as a result of the process – particularly around stress testing, risk management and board reporting. An interesting observation was that some RPs perceived IDAs as essentially relying on the honesty of individuals involved - the survey is to be used by the RSH to improve the IDA process, so more supporting evidence could be requested in future IDAs.
How do you demonstrate compliance with all relevant law?
We are launching a new product linked to this requirement in the Governance and Financial Viability Standard. Our biannual legal update report has been created in partnership with a pilot panel of RPs and offers a six monthly look back / look forward at legal, regulatory and policy changes relevant to housing associations.
Please get in touch with Sarah Greenhalgh for details.
Sarah Greenhalgh is speaking at this year’s National Housing Federation Governance Conference alongside Jenny Neville from ForViva on aligning your structure to your strategic purpose. Hear the debate on Thursday 17 June, 12-12.40pm.
New publication launched
We have launched a new newsletter - Housing Finance Snapshot. This monthly roundup provides a snapshot of banking and finance updates and opinion, for those based within social housing. You can register to receive this newsletter and our other publications via this form and please do share this with finance colleagues!
ESG – Top tips for securing investment
Investors are increasingly making decisions using ESG standards and there are significant opportunities for social housing providers. In Housing Executive this month, Louise Leaver, partner and housing finance specialist at Bevan Brittan discusses how to approach the issues and provides her top three tips for securing ESG investment.