What is an exempt charity and who regulates them?
An exempt charity has charitable status but cannot register with the Charity Commission and is not directly regulated by the Commission. Instead, exempt charities have a principal regulator, which checks the charity’s compliance with charity law and ensures exempt charities are accountable to the public. The principal regulator also has the power to ask the Commission to open a statutory inquiry into an exempt charity where it believes there is an issue for serious concern.
For higher education institutions, the OfS is the principal regulator, having taken over this role from the Higher Education Funding Council for England from 1 April 2018.
What does this change mean?
This change in legislation means that a greater number of higher education providers that are currently registered charities may be regulated directly by the OfS in the future.
Higher education providers that are currently registered charities and “relevant higher education providers” may now apply for exempt status and this can be granted following an order issued by the Privy Council (known as an Order in Council). “Relevant higher education providers” are those registered with the OfS and receiving (or entitled to receive) funding from the OfS under section 39 or 40 of the Higher Education and Research Act 2017 or those providing higher education courses that are designated for the purposes of section 22 of the Teaching and Higher Education Act 1988. There are, however, a limited number of charities which cannot be exempt, namely colleges in the university of Oxford, colleges or halls in the university of Cambridge or Durham, any students’ union or HE Institutions in Wales.
Exempt charities do not have registered charity numbers, so higher education providers that become exempt charities will lose their registered charity number and will be removed from the Register of Charities. This means that providers that are looking to prove their charitable status will need to refer third parties to the list of exempt charities on the gov.uk website, provide their HMRC charity reference number or ask the OfS to confirm that they are a charity.
After moving to exempt status, higher education providers will be regulated by the OfS as principal regulator and will be obliged to report matters of significance to the OfS, such as potential mergers, relocations and audit concerns. The OfS has published guidance for higher education providers that are exempt charities which sets out the legal obligations of a charity, its trustees and the role of the OfS as regulator. The guidance includes details of the reporting requirements placed on exempt charities by the OfS and the provisions of the Charities Act 2011 to which they are subject and those that do not apply to exempt charities. For example, the restrictions within sections 117 to 126 of the Charities Act 2011 relating to the disposal of land or the grant of a mortgage by a charity do not apply to exempt charities, but an exempt charity will still need to include certain statements within the relevant transaction documents.
Continuing role of the Charity Commission
Despite this move to direct regulation by the OfS, the OfS does not have the power to investigate charities itself. Therefore, where the OfS has cause for concern, it will refer providers to the Charity Commission, which has the power to launch a statutory inquiry. The OfS and Charity Commission published a memorandum of understanding in February 2019 which sets out both organisations’ commitment to cooperating together to prevent, detect and remedy the misconduct or mismanagement of charities.
Higher education providers will continue to have an obligation to report serious incidents to the Charity Commission, in addition to making regulatory reports to the OfS as set out in its regulatory framework. The memorandum of understanding provides for the Charity Commission and OfS to share information and work together when responding to such reports.
For further information and advice about exempt charities and the regulation of higher education providers, please contact Erika Clarke.