Charities (Regulation and Administration) (Scotland) Bill: business and regulatory impact assessment

Costs/savings

As there would be no changes made to the current legislation there are no additional costs associated with maintaining the status quo.

Option 2: Each proposal that forms the whole Bill has been analysed individually below.

• A requirement on OSCR to publish the statements of account for all charities in the Scottish Charity Register

All charities in Scotland are under a legal duty to prepare statements of account, which they then submit to OSCR. There is currently no legal requirement for statements of account to be published on the Scottish Charity Register ("the Register"), although charities are required to supply a copy to anyone who requests it. Publishing statements of account for every charity on the Register would enhance transparency and accountability in the sector, and clearly identify those charities who are not complying with that duty.

Sectors and groups affected-

OSCR

Charities

Benefits

This benefits the charity sector by increasing public trust and confidence in the sector by making more information about charities publicly available. OSCR has been publishing copies of statements of account for charities with an income over £25,000 and all Scottish Charitable Incorporated Organisations (SCIOs) since April 2016. OSCR's bi-annual public surveys consistently show that open access to accounts improves public trust in charities.

Publishing statements of account for all charities will benefit the wider public by making it quicker and easier for funders/donors to see how charities' funds are being spent. This enables banks, donors, and funders to do due diligence.

Making statements of account accessible to the public online would reduce the number of inquiries OSCR make as a result of charities not complying with section 23^[6] requests (while the number of inquiries is not high it is steady).

Making it possible for OSCR to publish all statements of account more easily would bring OSCR in line with the Charity Commission in England and Wales (CCEW), Charity Commission of Northern Ireland (CCNI) and other regulators.

In the 2019 consultation, 82% of respondents agreed that OSCR should be able to publish statements of account in full for all charities and felt it was a sensible proposal. The majority of respondents felt it would lead to increased scrutiny, transparency, accountability, and openness of charities to the public and other interested parties. The majority also noted that much of this information was currently in the public domain by either being available from charities directly or from other regulators such as Companies House.

• Requirements on OSCR to include charity trustee names in the Scottish Charity Register, to keep an internal schedule of charity trustees' details and to keep a publicly searchable record of removed charity trustees

OSCR currently holds limited information on the 180,000+ charity trustees involved in over 25,000 charities registered in Scotland. The law only requires the Scottish Charity Register to set out the principal office of the charity or the name and address of one of its trustees. The option proposed is for OSCR to publish the names of charity trustees on the Register and to establish a separate internal database of trustees containing their information and contact details as well as to establish a publicly searchable record of individuals that have been removed from being concerned in the management or control of any body by the Court of Session (and are therefore permanently disqualified from acting as a charity trustee, unless OSCR grants them a waiver). This would increase transparency and accountability and provide valuable and relevant information to better support effective regulation of charities and their trustees, through improved compliance, investigation, and engagement work.

Sectors and groups affected-

OSCR

Charities

Charity Trustees

Individuals permanently disqualified from acting as a charity trustee

Benefits

Actively obtaining trustee details from all charities for the internal database will give OSCR valuable and relevant information to better support effective regulation of charities and their trustees, through improved compliance, investigation, and engagement work.

It would enable OSCR to act more quickly/decisively where vulnerable beneficiaries or charitable assets may be at risk and make it easier to establish if a person is a trustee of more than one charity, making is easier to act more swiftly to protect assets/vulnerable beneficiaries of other connected charities where there is concern over conduct.

It could also help to prevent charities becoming unresponsive as it would be easier for OSCR to contact them.

Inclusion of names of charity trustees on the Register would make it easier to identify who is in control and management of charities. Principal contact details provided in the Register are not necessarily a trustee, they may be a solicitor or accountant. This will provide clarity for the public, who can often have a perception that someone is in control/involved in a charity, but they may not be a trustee. It also makes the distinction between trustees and staff – which can also be confused in the public's mind. Any complaints would come from a more informed perspective.

Importantly, inclusion of names of charity trustees on the Register will increase transparency of governance, bringing Scot's law in line with CCEW, CCNI and Jersey. There is potential for it to encourage more charities to have gender balanced boards if their governance is in public domain.

With regard to the record of removed trustees, this will assist charities in making their due diligence checks on prospective trustees. Charities currently have no way of accessing information on persons removed as charity trustees by the Court of Session. This means that while charities can obtain information in relation to other grounds for disqualification from being a charity trustee from sources such as the register of disqualified company directors, the Register of Removed Trustees provided by the Charity Commission for England and Wales or the Accountant in Bankruptcy's Register of Insolvencies, they are unable to check whether a prospective trustee is disqualified by virtue of having been removed as a trustee by the Court of Session. It is a criminal offence to act as a charity trustee while disqualified.

The 2019 consultation responses showed that 79% of respondents agreed that OSCR should be able to collect trustee information for use in an internal database, only 13% disagreed. 71% agreed that the names of trustees should be published on the external register, 21% disagreed. 79% agreed that the names of removed trustees should be published on the external register, 11% disagreed. 58% agreed that trustees should be allowed to apply for dispensation from their name being included on the Register and 31% disagreed. Wider benefits that were identified included increased transparency and openness of the charity sector and that the proposals would support effective regulation, reduce fraudulent behaviour, and support due diligence.

The follow-up consultation in 2021 produced a similar level of support for this proposal: strong support was expressed for a reduced external register of charity trustees for public use within the online survey (circa 75%). Around two-thirds felt there should be exceptions to being included in a public list.

• Updating the criteria for the automatic disqualification of charity trustees and extending it to individuals with senior management positions in charities

Changes to charity legislation for England and Wales have extended the list of automatic disqualification criteria for charity trustees and extended the provisions to certain senior employees of charities. To ensure criteria in Scotland are fit for purpose, the option proposed is to extend the criteria to ensure parity as far as possible with the equivalent legislation in England and Wales. Individuals could still apply to OSCR for a waiver from automatic disqualification as the law currently allows.

Sectors and groups affected

OSCR

Charities

Charity Trustees

Certain Senior management positions within charities

Benefits

Changes introduced by Charities (Protection and Social Investment) Act 2016 in England and Wales have extended the existing automatic disqualification criteria, as well as making all disqualification criteria applicable to individuals holding senior management functions within the charity. The four additional grounds for disqualification are as follows;

• Unspent convictions for perjury, perverting the course of justice, misconduct in public office, contempt of court and specified bribery, terrorism, and money laundering offences.
• Individuals subject to terrorist asset freezing orders.
• Disobedience of specified Charity Commission orders
• Individuals subject to notification requirements of Part 2 Sexual Offences Act 2003 (on the Sex Offenders register).

Updating the disqualifications to match 2016 Act would add disqualification for unspent convictions for offences related to terrorism, money laundering, bribery, and misconduct in public office; as well as individuals who are subject to notification requirements under sexual offences legislation. This would provide consistency with other regulators and lead to efficiencies in co-operation. (OSCR receive information from CCEW and CCNI when they disqualify a trustee).

While the risk of terrorism and money laundering are generally thought to be lower in Scotland, it would seem sensible to future proof the legislation to protect against these type crimes, which may become more prevalent in the coming years. This change could also prevent criminals targeting Scottish charities as the legislation is weaker.

The 2019 consultation responses showed a great deal of support for this proposal: 84% of respondents agreed that the disqualification and removal of charity trustees should be extended to match the criteria in England and Wales. 79% agreed that the criteria for disqualification should also be extended to certain senior management functions.

By extending the criteriathat trigger automatic disqualificationin Scotland to match the rest of the UK we will ensure that there are consistent criteria for the disqualification and removal of trustees across the UK, and prevent Scotland being left vulnerable or seen as a 'soft touch.'

• Providing OSCR with a new power to issue positive directions to charities

OSCR has legal powers to issue specific types of direction to charities and charity trustees. Most of OSCR's powers are interdictory or preventative, requiring charity trustees or others not to take particular actions. OSCR cannot direct charity trustees to take a specified positive action to remedy non-compliance or protect charitable assets. A power of positive direction would enhance OSCR's inquiry and enforcement powers in terms of protecting charitable assets and supporting good governance.

Sectors and groups affected

OSCR

Charities

Benefits

OSCR will have a general power to issue positive directions to enhance its inquiry and enforcement powers in terms of protecting charitable assets and supporting good governance. A general power avoids the need for future iterative legislative changes as new circumstances emerge which require OSCR's intervention and reflects the fact that the different situations in which a positive direction may be needed is not exhaustive.

A general power to issue positive directions will enable OSCR to better protect charitable assets and support good governance.

Examples of cases where the power might be of regulatory benefit, include directing a charity to:

• Comply with its constitution
• Take steps to protect vulnerable beneficiaries
• Take steps to improve public accountability
• Improve governance
• Comply with a statutory requirement
• Recover the loss of charitable assets.

This power could improve public confidence that OSCR are taking positive steps to remedy misconduct and protect assets.

This power would bring OSCR in line with other charity regulators across the UK. CCEW and CCNI have comparable general powers of positive direction.

83% of respondents to the 2019 consultation agreed that OSCR should be given a positive power of direction, with only 6% disagreeing (11% did not answer). Respondents were split on whether the power should be wide ranging (54%) or specific (44%). 60% agreed that failing to comply with a positive direction should be classed as trustee misconduct.

• Removal from the Scottish Charity Register of unresponsive charities that fail to submit statements of account

All charities in Scotland are under a legal duty to prepare annual reports and accounts and submit these to OSCR. Failure to do so can be regarded as misconduct in the administration of a charity. There are charities on the Scottish Charity Register for which OSCR does not have up to date reports and accounts - some of which have never submitted accounts. It is thought that some charities no longer exist but have failed to notify OSCR to be removed from the Register. Whilst there are existing mechanisms for OSCR to remove charities, failure to provide accounts and misconduct are not direct routes to removal.

Sectors and groups affected

OSCR

Charities

Benefits

Having little or no information about a charity's finances and activities undermines public trust and confidence in the sector, as it is difficult to know how public money, granted by both public donations and government funding, and assets are being accounted for or whether a charity is providing any public benefit. This also undermines trust in OSCR if it is deemed to have insufficient powers to deal with defaulting charities.

OSCR have invested significant resources into understanding and pursuing defaulting charities with minimal return. Defaulting charities have a negative impact on public trust and confidence in the sector, and on OSCR as a regulator, and should be removed from the register.

By granting explicit power to remove defaulting charities from the register it would potentially save OSCR time and money pursuing defaulting charities and would demonstrate to the public and charities that OSCR is acting against non-compliance, which may in turn make more charities comply. The power to remove defaulting charities would provide reassurance that all charities on the register are operating and providing public benefit and that assets are both protected and being used appropriately.

Consultation results showed that 87% of respondents agreed that OSCR should be able to remove non-submitting charities from the Register (only 3% disagreed – 10% did not answer). 83% agreed OSCR should have a positive power of direction to direct a charity to prepare annual reports and accounts, and 74% agreed non-compliance with such a direction should be classed as trustee misconduct. The submission of accounts is seen as vitally important to improve the overall transparency and accountability of the charity sector, and to safeguard and build public/donor/stakeholder trust and confidence in charities and charity regulation.

This power will protect the charity brand, ensure the accuracy of the register and that basic transparency and accountability requirements for charities are met. Having this power will improve the accuracy of the Register by making sure that the charities on the Register are actively working to achieve their charitable purposes, which in turn has a positive impact on public trust and confidence in the sector and in OSCR.

• A requirement for all charities in the Scottish Charity Register to have and retain a connection to Scotland

To be a registered charity in Scotland a body must have wholly charitable purposes and provide public benefit, but there is no requirement for the body to have any connection to Scotland (except for SCIOs). This means that OSCR might be compelled to register a charity that meets the charity test but has no activities in Scotland and no apparent connection with Scotland. The proposed option would be to require all charities in the Scottish Charity Register to have, and retain, a connection to Scotland. This would not preclude the registration of cross-border charities, which could continue to register with both the Charity Commission for England and Wales and OSCR.

Sectors and groups affected

OSCR

Charities

Benefits

If a charity has no or negligible connection to Scotland, it can make it more difficult for OSCR to effectively regulate them. This is because it can be difficult for OSCR to ascertain what activities the charity is carrying out and how they are providing public benefit. There is also a higher risk of OSCR losing touch with such charities.

As with the proposals above, this would broadly replicate the position in England and Wales, and Northern Ireland.

Overall, 82% of respondents supported this proposal, with the main feedback being that this was a reasonable proposition, and it was appropriate that OSCR's remit should only extend to charities with a genuine interest in Scotland, and whose activities were carried out at least partly in Scotland.

• A power for OSCR to conduct inquiries into former charities and their charity trustees etc.

The Court of Session, on application from OSCR, has the power to permanently disqualify the following individuals from being charity trustees:

• former charity trustees of a body which is no longer a charity
• former trustees of a charity which has ceased to exist, and
• individuals who were in management or control of a body which is no longer controlled by a charity.
  

However, OSCR does not have a corresponding power to make inquiries into a body which is no longer a charity, a body which is no longer controlled by a charity or a charity which has ceased to exist. This means that if OSCR is not aware of potential misconduct before a charity ceases to exist or ceases to be a charity, or before a body ceases to be controlled by a charity, OSCR cannot open an inquiry if information subsequently comes to light. If OSCR cannot open an inquiry, it cannot gather the necessary evidence to allow it to make an application to the Court of Session. This poses a risk that charity trustees who are guilty of serious misconduct could go on to be trustees of other charities, in cases where the misconduct was only discovered after the body in question ceased to exist or ceased to be a charity.

Sectors and groups affected

OSCR

Charities

Former Charity Trustees

Benefits

By extending the range of bodies that may be subject to inquiries, OSCR will be able to make inquiries into individuals who acted for or on behalf of those bodies (including former charity trustees), to allow OSCR to gather the necessary information about such individuals to support an application to the Court of Session for their permanent disqualification. This protects existing charities by ensuring that individuals who are guilty of serious misconduct do not go on to be trustees of other charities.

This power would mean that charity trustees who were guilty of misconduct could be permanently disqualified from being trustees in cases where the misconduct was only discovered after the charity ceased to exist or ceased to be a charity. As a result, charities and beneficiaries will be better protected.

This power would lead to increased public confidence and trust in charities and in OSCR as the regulator.

OSCR would use this power in accordance with its inquiry policy, which is publicly available on its website. The inquiry policy sets out how OSCR responds to concerns about charities and makes clear that they act in the public interest (and not on behalf of individuals). It also makes clear that OSCR operates in accordance with their values, which include acting independently, fairly, and proportionately, and targeting action where it is needed.

OSCR will only investigate former charity trustees or individuals concerned in the management or control of a charity or body where there was suspicion of wrongdoing, and it is in the public interest to do so.

In the consultation 83% of respondents supported this proposal as it was considered prudent, conducive to effective regulation and would strengthen the legislation.

• A requirement for de-registered charities' assets to continue to be used to provide public benefit

If a charity is removed from the Scottish Charity Register but continues to operate as a non-charitable body, it is under a duty to use the assets it held before it de-registered for the charitable purposes then set out in its Register entry.

While any such "pre-removal" assets must be used for charitable purposes, there is no requirement for them to be used to provide public benefit. This means that assets that have been built up during the life of the charity could potentially be used for private gain once the charity is removed from the Register.

Sectors and groups affected

OSCR

Charities

Former charities

Benefits

This change would require bodies that have de-registered (and continue to operate, just not as a charity) to be required to use the assets held at the time of removal for charitable purposes and to provide public benefit, to protect charitable assets.

The effect will be that the current charity test will continue to apply to the pre-removal assets despite the body no longer being a registered charity, thus continuing to provide benefit to communities and the Scottish public.

Public benefit will continue to be derived from charitable assets despite the charity de-registering. This will provide assurance that assets that have been built up during the life of the charity are still benefitting the public and are not being used for private gain. That is appropriate as those assets are likely to have been financed by public money/donations.

This will mean that the public continue to benefit during the period OSCR continue to monitor the assets.

69% of consultation respondents supported this proposal. There was strong support for the protection of charitable assets and respondents felt it was important that assets should be locked for the purpose they were donated for.

• Clarification of existing provision, to improve the speed and efficiency regarding OSCR's powers to gather information for inquiries

There are 2 aspects to this proposal:

A) inquiries into former charities and those misrepresenting themselves as charities

OSCR can require any person to provide information which it considers necessary for its inquiries. If OSCR requests such information about a charity from a third party, it must also give notice to the charity in question that it is the subject of the request and provide the charity with the right to review. However, the 2005 Act does not take account of situations where the body in respect of which information is sought is not a charity (e.g., a body that is misrepresenting itself as a charity or a charity that has ceased to exist). The effect of this is that OSCR cannot require a third party to provide information as it cannot serve the required notice on a 'charity.' This potentially hinders OSCR's inquiries as it cannot access all the information it may require.

B) timescales for requesting information

Where OSCR decides to request information from a third party about a charity to help with its inquiries, OSCR must notify the charity of its decision prior to doing so. This must be done within specified time limits and the charity has a right of review against OSCR's decision. There is some doubt as to how these various notice periods and time limits are intended to interact, and the intention is to clarify the position.

Sectors and groups affected

OSCR

Charities

Benefits

A) This proposal allows OSCR to give the required notice to a body or individual that is misrepresenting themselves as a charity, bodies which are no longer charities and former trustees of charities which have ceased to exist. This would align OSCR's notice requirement powers with its inquiry powers, enabling them to gather any necessary information to support those inquiries.

87% of respondents supported the proposal to extend OSCR's power of inquiry. Most respondents felt it was vital that OSCR had effective powers of investigation and felt this was a reasonable extension of those powers. Others noted that this would help to prevent unscrupulous individuals evading investigation, preventing fraudulent activity, and it was important for lessons to be learned to prevent the abuse of Scottish charity law.

B) The amendments proposed will make it clear how the various notice periods and time limits in the legislation are intended to interact when OSCR is carrying out an inquiry and requests information, thereby making the process more efficient.

82% of respondents supported clarification for charities which are subject to requests for information that notice periods can overlap. The main points raised were inefficient use of OSCR resource and delays to action being taken against a body or individual.

The result of this action will contribute to the protection of the charity brand and build trust in the regulator by ensuring that, where regulatory action is necessary, OSCR can act efficiently.

• The creation of a record of charity mergers and provision for the transfer of legacies

Charities can receive significant income from legacies in Wills. In Scotland there is a risk that a legacy will be lost to the charity sector where a charity changes its legal form or merges with another charity.

These provisions would enable a transferee charity in Scotland to register a merger on the Record of Mergers held by OSCR. Once registered a legacy to a transferee would be deemed to be a legacy to the transferor. In addition, there would be a link from a charity's entry on the Scottish Charity Register to the Record of Mergers, ensuring clarity for the public.

Sectors and groups affected

OSCR

Charities

Individuals

Benefits

This proposal would establish a record of merged charities in Scotland with a statutory mechanism to deal with legacies in favour of charities which have merged. This is consistent with legislation in England and Wales^[7].

There is a risk in circumstances where a charity changes its legal form or merges with another charity that legacies may be lost because the charity named in the Will (the transferor charity) has ceased to exist. Where a legacy fails, it may pass to other beneficiaries named in the Will failing which the laws of intestacy will determine who these funds will pass to. In most cases this will be the deceased's relatives however, in limited circumstances, the Crown via the King's and Lord Treasurer's Remembrancer (the KLTR) may benefit.

The risk of losing valuable legacy income has meant that some charities which have changed legal form or merged have kept the original transferor charity as a 'shell charity' to collect legacies and pass these to the successor charity. Retaining the shell charity creates an additional financial and administrative burden for the charity and OSCR and can be confusing to the public and donors.

This proposal was not included in the original 10 proposals that were consulted on in 2019 and 2021 but came about because of those consultation responses and discussion with the Law Society of Scotland and OSCR on their development.

• Providing OSCR with a power to appoint interim trustees, together with a list of minor amendments to the Charities and Trustee Investment (Scotland) 2005 Act

Sectors and groups affected

OSCR

Charities

Individuals

Benefits

This is a list of technical changes to the Charities and Trustee Investment (Scotland) Act 2005. These changes, put forward by OSCR and the Law Society during consultation, will serve to clarify specific elements of the existing legislation and ensure that there is less ambiguity in the law.

This proposal was not included in the original 10 proposals that were consulted on in 2019 and 2021 but came about as a result of those consultation responses through discussion with the Law Society of Scotland and OSCR.

Costs/savings

OSCR is a Non-Ministerial Office and a separate part of the Scottish Administration, the costs to the Scottish Administration have been identified by OSCR in relation to its operations. All costs are resource costs.

Costs to Scottish Administration for all proposals

(£)-Year 1- 438,229 – 655,770

(£)-Year 2- 66,825 – 182,785

(£)-Year 3- 63,607 – 177,886

(£)-Total- 568,661 – 1,016,441

The Financial Memorandum for the Bill sets out the breakdown of costs and savings for each proposal. The Scottish Government approached a small representative sample of charities to ascertain estimated costs and savings of the Bill provisions which will directly impact all charities. Feedback from the charities is reflected in the detailed examination of the proposals below. Overall, the charities who fed back did not anticipate incurring anything other than minor costs and were supportive of the proposals set out.