Three consultations that we'd be wise not to ignore

Charity investors should heed regulatory consultations, writes Kate Rogers

Kate Rogers
Kate Rogers

Summer is usually a time when the office quietens as people disappear on holiday and those left at their desks catch up on paperwork. Not those busy workers at the Charity Commission. Over the summer they have issued consultation after consultation, many on finance and investment matters. Like buses, it seems, you wait for ages and then three come along at once.

First, there was the consultation about total return for permanent endowments. This looked at draft regulations that would allow trustees of endowed charities to use a total return approach without the need to apply to the commission for consent. The proposed power would allow trustees to allocate investment returns - both capital and income - to the charity's unapplied total return. Unapplied total returns can then be invested or spent as the trustees consider appropriate. This regulation, when it comes into force, will be good news for permanent endowments, allowing more flexibility in the use of the funds now and in the future.

Then there was the one about common investment funds, which is slightly more controversial because it throws the future of these important charity investment vehicles into doubt. Many charity investors use common investment funds to get exposure to markets. As they are open only to charities, they are managed by specialists for lower than average fees. A recent European directive has meant that the regulation of these funds will change. Historically, they were regulated by the Charity Commission, and this allowed for the development of special features, including income smoothing, which is particularly useful for charity investors. The commission has expressed a preference for passing the regulation of these funds to the Financial Conduct Authority, either indirectly through the regulation of the fund managers or directly through the establishment of a new authorised investment vehicle. This might be a sensible goal, but there are concerns about the transition arrangements and the final structure. In my role as chair of the Charity Investors' Group, we have responded by seeking to ensure that specialist funds for charities are retained and charity investors are suitably protected by the regulation.

And finally there is the Sorp consultation - more for the accountants, but nevertheless important for charities concerned about how their finances are reported to the public. This one is open until 4 November, so those with views should visit the commission website to respond.

Although regulatory consultations are not usually at the top of most people's reading lists, they provide us with an important opportunity to have our say and to shape the future regulation of the charity sector. It is clear that the commission is seeking to stand back from its current role in the regulation of charity investments, whether in the issuing of total return orders or the regulation of common investment funds. This might be because it recognises that its core competencies do not and should not cover investment markets, but it also undoubtedly reflects its reduced resources.

We must all think carefully about how these changes might affect our own charity's investments and should engage with the commission, seeking to ensure that the hot potato of investment regulation is not passed on too quickly, but is carefully thought through and positioned, recognising the special characteristics of charity investors and the funds that were designed for them.

Kate Rogers is a client director at Schroders

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