FINANCE NEWS: Commission drops ban on derivatives for investment use

Charities can buy derivatives as part of their general investment strategy under new guidelines published by the Charity Commission.

The Commission had previously ruled that derivatives - future investments bought at a prearranged price and date - could not be part of a charity's powers of investment.

Charities have traditionally only been allowed to buy derivatives necessary for their operations. For example, overseas charities can purchase them to ensure they have sufficient foreign currency.

But in an update of the Trustee Act 2000, published last month, the Commission says it "now considers that the purchase of a derivative can be regarded as being within the scope of the general investment, as long as the purchase is in support of the investment process".

The Commission said the new guideline meant charities could use derivatives in order to balance their portfolios, enabling them to spread risk between different sectors or ensure a good mix of income and growth. But charities are still not permitted to speculate in derivatives.

Guidance is on the Commission's website at:

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