Plans for FSA to regulate specialist charity investment funds

Proposals in Budget backed by Charity Commission

The Charity Commission has given its backing to a proposal to move the regulation of specialist charity investment vehicles to the Financial Services Authority.

In last week's Budget, the Government announced that it would consult the commission on whether it should relinquish responsibility for common investment funds and common deposit funds, two specialist types of investment vehicle that allow charities to invest in cash, shares, bonds and property without paying the same taxes as regular investors.

CIFs and CDFs are currently created and overseen by the commission, but the regulator said its work was often duplicated by the FSA.

Under the new proposals, the funds would be authorised by the FSA and would receive the same security as other FSA-authorised funds in the event of fraud or bankruptcy. Funds would also have to meet FSA standards of management.

"This is a good example of regulatory reform in practice," said Andrew Hind, chief executive of the Charity Commission. "As the economic world around us changes, it is right that regulatory bodies should look at how they can continue to meet the needs of investors - in this case charities, which play a vital role in society."

The commission said it expected a public consultation on the proposals to be launched shortly by a joint working party including itself, the FSA, the Treasury and the Office of the Third Sector.

Charities are seeking to improve the tax benefits on these funds by arguing that VAT should not be paid on their management charges, a concession that already exists for ordinary unit trusts (18 February, page 11).

BUDGET ROUND-UP

A £20m Hardship Fund was announced for charities suffering cash flow problems because of increased demand in the recession.

The sector is to be funded alongside local authorities to create 100,000 jobs for young people in "socially useful activities".

There were no firm proposals on the Social Investment Bank, which will funnel money from dormant accounts to the sector.

No changes to Gift Aid were proposed, but research continues on the effect of redirecting higher-rate tax relief from donors to charities.

An overhaul of the law on substantial donors is promised for 2010.

- For full coverage of the Budget, go to www.thirdsector.co.uk/bigissues

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