Commentary on provisions of Act Section 1: Official warnings by the Commission
Section 1 inserts into the Charities Act 2011 new section 75A, which provides the Commission with a power to issue an official warning to a charity or charity trustee. Subsection (1) specifies when the Commission may issue a warning. A warning may be issued where there is a breach of trust or duty by a charity or trustee, or other misconduct or mismanagement in the charity. A breach of duty would include non-compliance with a Commission order or direction. Subsection (2) enables the Commission to publish a warning. The Commission is required to give notice of a warning (subsection 3), and the means by which it may do so (subsection 4). Subsection (5) requires the warning notice to specify certain matters, including the grounds for the warning, and any remedial action that could address the warning. Subsection (6) requires the Commission to take account of any representations on the content of the warning made to it within the period set out in the notice. Subsections (7) to (9) make provision for the variation of withdrawal of a warning.
	There is no right of appeal to the Charity Tribunal against an official warning, as is currently the case with non-statutory warnings issued by the Commission. However in addition to the representations process described above, an official warning could be challenged through judicial review.
	The official warning will be similar to powers already available to many other regulators. It is intended to be a more reasonable and proportionate way of dealing with breaches of statutory provisions of the Charities Act 2011, breaches of fiduciary duty or other mismanagement where the risks and impact on charitable assets and services are relatively low. Sometimes this may be as a more proportionate alternative to use of remedial powers such as suspensions, or removal of trustees or restitution action against trustees. In such cases the Commission will make clear that continuing or repeating the breach will lead to tougher action being taken straight away next time. In other cases, a warning might be used alongside or with reference to other powers to increase the incentive to comply.
	The official warning will specify the breach, and may provide advice and guidance to the charity on how the charity can remedy the breach that has been identified in the warning. The official warning does not constitute a power of direction.
	The Commission would be able, but not required, to publish official warnings. If it does publish it can do so in any form. The Commission will publish its policy for when and how this will be done and expects to apply a similar process to the way it currently deals with its discretion to publish the results of inquiries under the Charities Act 2011.
	The Commission has provided the following examples of when the warning power could be used:
Example (1): unauthorised payments
A charity makes unauthorised payments to a connected company or that benefit a trustee. The size of the sums involved mean it is disproportionate to take stronger action but the Commission could issue an official warning on future conduct.
Example (2): governance problems
Breaches of a charity’s governing document that lead to governance problems. For example, not running internal elections properly or repeated failure to call Annual General Meetings. This can lead to complaints and disputes within the charity but often the impact is not great enough to justify the use of current powers. A published Warning could promote compliance and increase transparency and wider public trust and confidence.
Example (3): where a statutory inquiry would be disproportionate
The Commission is unable to make directions outside of an inquiry (the consultation proposed changing this but it was rejected by Government in the light of responses). Where the Commission considers it disproportionate and unnecessary to open an inquiry purely for the purpose of making a direction, issuing an official warning could be an alternative way of making it clear to a charity that they should take action (although the official warning power is not itself a power of direction).