Fri 10 May 2024

Updates to charity law: Charities (Regulation and Administration) (Scotland) Act 2023

As of 1 April 2024, we are beginning to see the introduction of the Charities (Regulation and Administration) (Scotland) Act 2023 (the “2023 Act”).

The 2023 Act is a new piece of legislation, passed by the Scottish Parliament on 28 June 2023, which provides updates to the current laws under the Charities and Trustee Investment (Scotland) Act 2005. The 2023 Act aims to increase transparency and accountability in charities whilst further enabling powers of the Office of the Scottish Charity Regulator (“OSCR”).

Changes from 1 April 2024

A number of changes came into force on 1 April 2024, with others to follow later in the year. Below, we outline some relevant updates to charity law in Scotland:

Removing charities that fail to submit statements of account

All charities must submit accounts to OSCR. This was a legal requirement pre the 2023 Act, with the accounts having to be submitted to OSCR within nine months of the financial year-end. This seeks to increase transparency within the charity sector, as well-kept financial records provide an element of external public and third-party trust within charities.

The 2023 Act now allows for the removal of charities which do not submit statements of account to OSCR. Should a charity fail to submit accounts to OSCR before the relevant deadline, subject to alerting OSCR on the matter, the charity may be removed from the Scottish Charity Register. Nevertheless, there is a grace period available for charities, where the charity can contact OSCR regarding the failure. Perpetuating their reputation as an active regulator, OSCR have already notified over 100 charities of their intent to remove them for the Register in April 2024.

OSCR’s increased inquiry powers

The 2023 Act also introduces several powers which allow OSCR to direct operations of the charity as opposed to merely providing advice to them.

Under the 2005 Act, OSCR had the power to investigate any concerns surrounding a charity. From these investigations, OSCR only had the power to instruct a charity not to take a particular action. Under the 2023 Act, OSCR can compel changes, resulting in the charity taking action to enforce positive directions suggested by the regulator. This may look like directing a charity to appoint or remove trustees, for example. Additionally, OSCR now has the power to appoint interim trustees where a charity may require one.

In practice, trustees resign from charities on a regular basis. It is not uncommon for resignations to occur where the charity itself is facing difficulties, whether financial or reputational. Under the 2005 Act, former trustees could typically step away from their role without going concern. The 2023 Act now allows OSCR to inquire into former charities and charity trustees. This new inquiry power ensures that past resignations from a charity or dissolvement of the charity itself is no longer an exit strategy for trustee liability.

Notifiable Events Regime  

As of 1 April 2024, OSCR will no longer be asking charities to use the notifiable events process, which it introduced in April 2016. OSCR’s aim for the regime was to encourage charities to report any significant events which are happening, or had happened, at the charity. The regulator detailed that the regime was not being used as intended, with many reports coming from large cross-border entities. Moreover, reports did not tend to intimate whether the issues had been resolved by the trustees or if they had the experience necessary to resolve them.

Now, OSCR is placing greater responsibility on trustees complying with their legal duties, detailing that the trustees should address challenges themselves in the first instance. Nevertheless, where serious issues arise on charity management or trustee misconduct, OSCR has explained that this should still be reported through their “raise a concern” facility.

Future changes

Some future changes will come into force on 1 October 2024. The most notable will be OSCR providing a publicly searchable register of individuals disqualified from being trustees. This will allow charities to perform further due diligence when making appointments.

Further changes are set to come into force in summer 2025, allowing charities sufficient time to prepare.

How can MFMac help?

A large number of our lawyers are experienced in advising on all aspects of charity law. It is imperative that both charities and trustees understand their duties and the changes within the charity law sector to remain compliant.

For more information or specific advice, please contact Valerie Armstrong-Surgenor.

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