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The government has published a draft Protection of Charities Bill giving the Charity Commission powers to disqualify charity trustees it considers to be unfit, and to shut down a charity for misconduct or mismanagement.

The commission, which regulates charities in England and Wales, complained in September 2013 that its statutory powers are not strong enough to enable it to take effective action. Its warnings – which resulted from criticism of the commission's inaction in some cases of abuse – led to a public consultation on the principle of tighter regulation. This would be aimed not just at the misuse of charities for tax avoidance, but at the use of charities to raise funds for causes considered by the government to be terrorist-related, or that never receive the money donated.

Following that consultation, the government announced in June that it would legislate. The new bill published this week grants the commission powers to:

• ban people from being a charity trustee if they have been convicted of terrorism or money laundering, or if they are considered ‘unfit’;
• require a charity to shut down following an inquiry into misconduct or mismanagement;
• issue a charity with an official warning that will stay on the charity's record;
• take enforcement action against trustees who have already resigned in order to avoid removal and disqualification.

Civil Society Minister said the new powers would 'protect public trust and confidence in charities and their effective regulation'.

However, the bill does not grant the commission all the powers it asked for. In particular, it does not specify that people who are disqualified from trusteeship should also be banned from taking up other key roles in charities, such as treasurer or finance director. That proposal caused considerable disagreement among respondents to the consultation.

The commission’s request for powers to direct trustees not to take specific actions and thus prevent mismanagement or misconduct before it happens, was not included in the bill either.

The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.

Published on our website on Oct.24, 2014