Charity Commission responds to Corporate Governance consultation

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The Charity Commission has issued its response to a Department for Business, Energy & Industrial Strategy (BEIS) consultation on ‘Restoring Trust and Confidence in Audit and Corporate Governance’.

The consultation puts forward proposals strengthening the corporate governance and audit framework for major companies in the UK, ensuring that reporting is of a high quality to give confidence to stakeholders and investors. Amongst a number of measures suggested, the consultation seeks views on whether the definition of ‘Public Interest Entities’ (PIEs) should be extended to third sector entities with a public benefit purpose, including charities with annual incomes of over £100 million.

PIEs are subject to additional regulation and currently the definition covers publicly listed companies. If charities were to be included in the definition of PIEs and the proposed reforms were brought in, a new regulator, the Audit, Reporting and Governance Authority would have the power to take action against the directors, or trustees in the case of charities, if misleading statements are made about finances.

The Charity Finance Group has issued a statement, giving its view that “the personal liability potentially inferred upon charity trustees as a result of the PIE classifications are largely unworkable and inappropriate in the charity context.”

the personal liability potentially inferred upon charity trustees as a result of the PIE classifications are largely unworkable and inappropriate in the charity context.

In its response to the consultation, the Charity Commission has recommended that charities are not included in the definition of PIEs and associated reforms. Its reasoning for this recommendation includes that the proposals have been developed with considerations relevant to the private sector, such as protecting investors, and are not transferable to the charity sector. Furthermore, charities are already subject to an enhanced regulatory framework, which in the Commission’s view already deals with the issues that the reforms are aimed at addressing. The consultation document produced by BEIS does not take the current mechanisms in place into account.

The Commission suggests that consideration could instead be given to the enhancing framework that is already in place for charities and invites BEIS to work with them to do so. BEIS have closed the consultation and are analysing the feedback.

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