REGULATORY IMPACT ASSESSMENT
TRUSTEE INDEMNITY INSURANCE
Purpose and Intended Effect
Objective
The objective of the proposed change is to ensure that charity trustees are able to purchase trustee indemnity insurance (TII) out of the funds of the charity, without breaching remuneration restrictions contained in the Charities & Trustee Investment (Scotland) Act 2005.
Background
Section 67 of the 2005 Act sets out the circumstances in which a charity may remunerate trustees, including that less than half the total number of trustees are in receipt of remuneration at any one time. Remuneration includes any benefit in kind. Therefore, the definition captures the payment of trustee indemnity insurance from charity funds, meaning a charity would be in breach of s67 of the 2005 Act if it provided TII to more that half of its charity trustees. Prior to the commencement of the 2005 Act TII could be provided for all of a charity's trustees out of the charity funds.
Rationale for Government Intervention
The Scottish Government, and the then Scottish Executive before that, has been clear that the restrictions on TII are an unintended consequence of the 2005 Act. This has caused considerable concern within the charity sector, who feel that this issue may make it harder to recruit and retain charity trustees.
Consultation
Within Government
The Office of the Scottish Charity Regulator (OSCR) was consulted on, and offered support for, the proposed change.
Outwith Government
Further consultation was considered unnecessary because these provisions do not reflect a change in policy - they merely correct an unintended consequence. The Scottish Government and OSCR have received correspondence on this issue from a range of people including individuals, charities, umbrella organisations and MSPs. All expressed concern at the restrictions the 2005 Act placed on the provision of TII from charity funds and urged the Scottish Government to address the issue.
Options
Option 1 - Do Nothing
Leaving the Charities and Trustee Investment (Scotland) Act 2005 as it is would mean that charities would continue to be unable to provide all their trustees with TII from charity funds.
Option 2 - Amend the 2005 Act
The only way to allow charities to provide all their trustees with TII from charity funds is to amend the Charities and Trustee Investment (Scotland) Act 2005.
Costs and benefits
Option 1
Sectors and groups affected
The charity sector and OSCR would be affected.
Benefits
There would be no benefits to retaining the status quo.
Costs
Any difficulties that the restrictions on providing trustee indemnity insurance have been causing charities in attracting and retaining charity trustees would continue. OSCR would have to enforce this aspect of the 2005 Act and use their resources to take action against charities breaching the provisions where necessary. Scottish charities would continue to be at a disadvantage to English and Welsh charities, who can provide all their trustees with TII from charity funds, and this difference could cause particular problems for charities that operate in Scotland and England and Wales.
Option 2
Sectors and groups affected
The charity sector will be affected.
Benefits
These provisions will allow charities to provide all their trustees with TII from charity funds if they so wish which may mean that charities find it easier to recruit and retain trustees.
Costs
The proposed change does not place any requirements or costs on charities. It will enable them to provide TII to all of their trustee without breaching the terms of the 2005 Act.
The provision of Trustee Indemnity Insurance is a specialised market, and the cost of providing trustees with indemnity insurance varies considerably depending on the nature of the charity's activities, the size of the charity and the number/experience of trustees, making it hard to provide costs. A cost of around £1000 to cover all the trustees would not be uncommon, although we understand that the Church of Scotland has been quoted a price as low as £36 per congregation (each congregation being registered as an individual charity). However, as mentioned above, the provision will enable charities to provide TII, not require them to. In addition, this would not be a new cost for any charity which provided all their trustees with TII before the restrictions in the 2005 Act were brought into force - it would merely enable them to legally do what they were able to do before the Act came into force.
Enforcement, sanctions and monitoring
The provisions do not impose a requirement. Therefore, enforcement and sanctions are not necessary. The provisions will be monitored by the Office of the Scottish Charity Regulator (OSCR).
Small/Micro firms impact test
Any small firm that was a charity on the Scottish Charity Register would be able to make use of this enabling provision to provide all their charity trustees with indemnity insurance, they would not be required to. They would be able to decide on an individual basis if the benefits would outweigh any financial cost.
Test run of business forms
No business forms will be involved in the proposed legislation.
Summary and recommendation
Based on the analysis outlined above the Scottish Government recommends the adoption of option 2.