Joint Committee on Social Protection, Community and Rural Development and the Islands debate -
Wednesday, 21 Sep 2022

General Scheme of the Charities (Amendment) Bill 2022: Discussion

Chairman

I have received apologies from Deputies Charles Flanagan and Claire Kerrane, and Senator Róisín Garvey. I remind members participating remotely that they must do so from within the precincts of Leinster House. I ask members and witnesses to please turn off their mobile phones as they interfere with broadcasting equipment. For members participating remotely, use the raise hand button on Teams if they wish to contribute.

Good morning members and welcome back after the summer recess. It is good to see those who did not travel with us to Bere Island earlier this month. I am aware the joint committee met in private session last week and we can discuss the issues further in private session later, if that is agreed.

I am pleased today to continue discussion on the general scheme of the charities (amendment) Bill 2022, which was recently referred to us by the Minister for Rural and Community Development, Deputy Heather Humphreys, for pre-legislative scrutiny by the committee. The principal primary legislation governing the operation of charities in Ireland is the Charities Act 2009, which provided for a definition of charities, their operation and reporting requirements, and the establishment of a regulatory authority. The purpose of the Bill before us is to strengthen the charity sector, ensuring greater transparency, clarity and fairness, which would serve to enhance public confidence in the sector. The proposals contained in the general scheme seek to improve the operational capacity of the charities regulator in order to conduct its statutory functions, ensuring more proportionate regulation for the sector.

More than four out of every ten registered charities, of those who are incorporated, do not currently have to submit an annual statement of accounts to the regulator. A number of amendments to the Charities Act 2009 have been proposed under the general scheme which would remove this exemption whereby the relevant accounting and reporting requirements in the 2009 Act do not apply to the charities that are companies. At the other end of the spectrum, the existing financial threshold for audit is placing an unnecessary financial burden on small volunteer-led charities, thus making it harder to obtain volunteers to run such organisations, many of which are providing vital local services in communities throughout our country.

I am pleased today to have the opportunity to consider this matter and I would like to welcome officials from Charities Institute Ireland, The Wheel, and Mason, Hayes & Curran LLP. I welcome Ms Alice Murphy, partner with Mason, Hayes & Curran LLP; Ms Áine Myler, chief executive officer of Charities Institute Ireland; and Mr. Ivan Cooper, director of policy at The Wheel. You are all very welcome this morning.

In terms of privilege, witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction. For witnesses participating remotely and from outside the precincts of Leinster House, they are reminded that parliamentary privilege does not apply in their case, and the same level of caution should be applied as previously mentioned. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise, or make charges against a person outside the Houses or against an official either by name or in such a way as to make him or her identifiable.

I now call on Ms Áine Myler to make her opening statement. She will be followed by Mr. Cooper and Ms Murphy.

Ms Áine Myler

Our submission on the charities (amendment) Bill 2022 was made co-operatively by Charities Institute Ireland and The Wheel, which together represent a very significant proportion of the registered charities and voluntary organisations in Ireland, with legal input from Mason, Hayes & Curran, solicitors, Ireland's largest and leading provider of legal services to the charity sector. We support this Bill and its objectives to further develop the regulatory framework for registered charities in Ireland. The proposals, observations and commentary that follow are intended as constructive and informed inputs into the development of the legislation. We are acutely aware the Bill represents the sole opportunity for legislative development and amendment for the short and medium term. There will be only one opportunity to get this right for the charities regulator, and for our sector.

The charity sector is exceptionally diverse with a long history of making an important and unique contribution to our economy, community life and civil society. Charities deliver a wide range of supports and services, including the relief of poverty, the promotion of education and health, protection of the environment, and the support of our most vulnerable citizens. There are almost 12,000 registered charities and a further 20,000 plus organisations in Ireland's wider non-profit sector.

Some key statistics for our sector include combined annual turnover of more than €14.5 billion. In a 2018 report published by the Charities Regulator, Indecon estimated that total direct, indirect, and induced value of the impact of the work of Ireland's charities exceeds €24 billion. All charities work for the public benefit. This means there is no gain or benefit to trustees or members. Many of Ireland's charities are funded or part-funded by the State, and they form a critical part of our economic and social infrastructure.

The Wheel and Charities Institute Ireland, Cii, is tasked by our members to represent their views, amplify their voices and ensure that proportionality, parity of esteem and respect are core tenets of and expectations from engagement with policymakers and officials.

This legislation is long awaited by our sector and we are encouraged by many of the positive proposals, such as the inclusion of the advancement of human rights as a charitable purpose, the alignment with the Companies Act 2014 for financial reporting and along with the lifting of the audit threshold to €250,000, the release from liability of court-appointed charity trustees for the consequences of decisions and actions that preceded their appointment and ensuring company secretaries are not automatically regarded as trustees of a charity.

Mr. Ivan Cooper

There are several areas where significant concerns have arisen in relation to the proposed provisions. In addition, some of the proposals could overload the Charities Regulatory Authority with an unwieldy administrative burden, producing limited regulatory value and, in any event, it would not be possible without providing substantial additional resources. We agree with the Minister of State, Deputy Joe O’Brien, when he says that it is important that the legislation “strikes the right balance between proportionate regulation and governance, ensuring that a reasonable and fair approach is at its core”. In its present form, this draft legislation does not fully support this objective.

We have named the top five issues which could adversely affect charities in their day-to-day work and our sector’s ability to recruit and retain trustees to our boards, without whom charities cannot function. First, the proposed extension of very significant additional powers of direction and sanction to the Charities Regulator; in particular the disproportionate power to deregister charities for a range of minor non-compliances. Second, insufficiently strong appeals processes and insufficient recognition of potential reputational damage to charities occurring prior to any finding of fact during an investigation. Third, the unreasonable and likely unworkable requirement for charities to inform the Charities Regulator of “significant events”, where “significant” is not sufficiently defined, which have or might in future negatively impact the charity. Fourth, the impact of the perceived or felt increase in the responsibilities of charities trustees, accepting that the proposed definition of the duties of charities trustees merely codifies what is already there in common law, the perceived focusing of responsibility on individual charities trustees rather than on the body corporate or the board collectively and the effect these perceptions may have on deterring people from volunteering to be trustees. Fifth, the unworkable requirement for any change, however minor, to a charity’s constitution to be approved in advance by the Charities Regulator.

Ms Murphy will provide a summary of these provisions and others.

Ms Alice Murphy

I turn to a summary of the legal submission. In the legal section of the written submission to committee, Mason Hayes & Curran outlined legal amendments which could be considered to address the major policy issues flagged by the other speakers, as well as a series of stand-alone legal issues which were apparent from our review of the Bill and which are capable of being addressed in subsequent drafting of the Bill.

I turn to a number of heads of the Bill which the committee may view as relevant to our appearance. Head 5 introduces discretionary reporting of suspected charity law offences. We envisage that problems could arise if the regulator is not obligated to share information with An Garda Síochána indicating a criminal act or breach of law. We suggest that a positive obligation should be imposed on the Charities Regulator to share information with the appropriate authorities where a suspected offence has occurred.

On head 7, this proposed amendment inserts a legal obligation that a charity shall not amend its constitution without the prior approval of the Charities Regulator. We are concerned that this provision is not proportionate as it requires the prior approval of the Charities Regulator for any change to a charity’s constitution, however minor or inconsequential. It would be unworkable in practice and reflects a significant extension of the regulator’s statutory powers in terms of how charities define themselves.

Head 8 grants the Charities Regulator powers to make changes to the information on the charities register without consulting the charitable organisation in question. As it stands, this head would not provide charity trustees with an opportunity to comment on, object to or agree to the changes to the register. We believe that the regulator should engage with charity trustees in relation to any change and afford them the opportunity to make the change.

Head 9 streamlines the process of removing charities from the register and establishes the power of the Charities Regulator, rather than the High Court, as the first adjudicator. Removal from the register is an extraordinarily serious sanction with far-reaching consequences. Charities are only permitted to operate in Ireland if they are on the register. This head removes several important steps in deregistering a charity and could lead to a sudden shutdown of public services, immediate loss of jobs and the suspension of all financial transactions and board status for a charity which suffers a deregistration.

Head 23 introduces an obligation for charity trustees to notify the Charities Regulator as soon as practicable where there are reasonable grounds to believe a significant event has occurred or is likely to occur. We have concerns about the definition proposed for "significant event". This head creates a circumstance where trustees could be retrospectively held accountable for not reporting something later determined by the regulator to be significant. This will place a disproportionate burden on charity trustees who must decide in the abstract whether a potential set of circumstances qualifies as a serious incident. This may become one of several administrative burdens placed on the regulator, as concerned boards may report on all manner of possible “significant events” in their need to comply, thus overwhelming the regulator's capacity.

Head 24 relates to directions arising from an inspector’s report and a new offence of failure to comply with a direction. This head gives the regulator significant discretionary power, including power to deregister a charity without input or submission from that charity. We recommend this provision be amended to facilitate engagement by the Charities Regulator with the charity, prior to any decision on removal.

Head 29 addresses payments made to charity trustees other than for fulfilling their role as trustees. Certain charities have provisions in their constitution that permit or oblige, for instance, the CEO to be a charity trustee. Additionally, the proposal to require advance approval for any arrangement between a charity trustee or any person connected to that trustee relies on a very broad and potentially inappropriate definition. There will be circumstances in which it is good governance practice, and represents the best outcome for the charity, to enter into an arrangement with a trustee. Many such arrangements are already in place and no provision is made for this reality in the Bill. This is a lengthy section and we have a series of concerns about it, which are set out in our written submission.

Ms Áine Myler

The key concerns summarised here centre on the general extension of the regulator’s discretionary powers, which could potentially undermine the independence and authority of charity trustees. There will also be a significant felt increase in the formal responsibilities of trustees, which might further deter people from carrying out these vital roles.

We believe there is a need for a more supportive, rather than adversarial, approach to regulation, in order to ensure that the sector functions effectively. Any sanctions should be accompanied by a positive obligation to engage with charities. There is also the risk that some of these amendments will place an unnecessary burden on both the regulator and on charities, with no additional protection of the public interest or advancement of a proportionate regulatory environment.

Mr. Ivan Cooper

In conclusion, it is the view of the parties to this submission that the Bill presents a critical opportunity to enhance our legal framework, strengthen its effectiveness and ensure it is transparent, fair and proportionate.

Our suggested inputs reflect the need to achieve a balanced regulatory regime that considers the practical reality of the limited resources of the Charities Regulator and the charities that make up this vibrant sector. Many Irish charities are small and governed and led by volunteers. Many have limited access to legal advice. We need a system of regulation that works for all charities and a regulatory framework that provides absolute clarity as to the legal obligations applicable to charity trustees. Let us remember that, above all, charity trusteeship is a public service and often not acknowledged, understood or valued. Trustees are the guardians of charity, and trusteeship requires personal sacrifice. It means people giving time and energy that might otherwise be invested in their careers or spent with their families and friends in serving their charities and the people they support. Without competent, skilled and committed trustees, the charity sector cannot function. We advocate a fair and balanced regulatory system which will be equally robust and supportive, protecting and promoting the compliant charities and taking swift action against unregulated intentional wrongdoers or the grossly negligent.

We appreciate this opportunity to engage with the joint committee on developing this important legislation for our sector, which provides such vital services, supports and employment across Ireland.

Chairman

I thank the witnesses for their comprehensive and well-laid-out opening statement. The first Member who has indicated is the committee Leas-Chathaoirleach, Deputy Ó Cathasaigh.

Deputy Marc Ó Cathasaigh

I thank the witnesses for their opening statement and the supporting documentation. Their opening statement was comprehensive. Their written submission is extremely detailed. I thank Mr. Cooper and members of the Wheel for talking me through that submission. It is comprehensive, and it was brilliant to have that opportunity to talk it through with them in order to really understand the implications of this. Even though there are quite a few criticisms of the general scheme in what the witnesses have submitted to us, I know they are positively disposed towards it. That bears saying. We all recognise the need for updated legislation in this area. We are trying to go in the right direction with this proposed Bill. It is about making charities easier to function, but with an appropriate level of oversight. In addition, this shows the importance of the pre-legislative scrutiny process, whereby we have an opportunity to have these discussions before general schemes are turned into legislation, before they enter into that pipeline where it becomes much more difficult to shape the legislation. All those things bear saying from the outset.

I will focus on a number of matters in order to allow the witnesses to bring their points out in more detail. What really comes across to me is that in a lot of cases here a sledgehammer is being used to crack a walnut. It seems like there has been an overpowering of the regulator in some cases to answer a problem that is there and, in other cases, to answer a problem I am not sure is there. One example of that was the idea of the transfer of powers to the High Court and that being moved back to the regulator, which is provided for in head 9, relating to section 43 of the Act of 2009. When we discussed this it became clear there is not a huge workload being generated by the High Court that this provision seeks to answer. Therefore, the question must be asked, why do we need to do away with this provision? It occurred to me that if the Bill were passed in its current format, mischievous charities might make numerous amendments to their constitutions and submit them to the regulator. They might foresee numerous significant events, and if all the charities in Ireland were to foresee numerous significant events and to make numerous minor changes to their constitutions, I think quite a job of work would be created within the new regulator.

Two of the most important things that jumped out at me were head 9, relating to section 43 of the Act of 2009, and head 8, relating to section 40 of the Act. They are about the ability to delist a charity. There is no sense of a graduated response here. It is like we go straight to a nuclear deterrent. If a charity is removed from the register, that is it, essentially. The curtains are closed and you go home. I do not see the steps leading up to that or see within the proposed Bill a sufficient requirement to engage with the charity before that deterrent is put in place. Then I do not see an appeals process whereby if a charity feels that it has been unfairly dealt with, it would have some sort of recourse. That is one of the central things that jumped out at me from the witnesses' submissions. In addition, there is the requirement to disclose information on a significant event, which is crystal ball gazing from anybody involved in a charity. Significant events should be identified and acted on, and charities should feel like they can go to their regulator and say they think there is a problem coming down the line and ask for help with it. As currently constituted, however, the general scheme provides that you are supposed to look into a crystal ball and, by God, if you miss something you are on the hook for it. I do not know if that will help charities to view the regulator as a resource that can help them and something they can rely on.

I could draw on many more issues raised in the witnesses' written submission, but if we may start with those, I invite the witnesses to comment on those specific provisions.

Ms Áine Myler

Those are two of the principal and major concerns we have outlined. With regard to the deregistration of charities, there is a chilling effect for many organisations to think that the latter could occur in the space of 24 hours. I am not for one instance suggesting that this is the type of action the Charities Regulator would take, but the proposed Bill - or the Act, if the general scheme in its current format were to be passed - would mean that the regulator could do that. I do not think it is thought through on the basis, as Deputy Ó Cathasaigh rightly said, of the sequential actions that occur from that because the curtain is pulled down and we have a situation of completely frozen assets, employment termination and services termination because as soon as the charity is deregistered it cannot carry out any business whatsoever. It is therefore no longer really a functional entity. The committee can imagine the amount of public funding that may have already been provided to that charity, the people who rely on its services and the employees working for it. As a result, I agree with Deputy Ó Cathasaigh that this is one of the major aspects of the general scheme that require further legislative scrutiny before its introduction.

The significant events, as Deputy Ó Cathasaigh rightly said, are not determined or outlined in the general scheme. In addition, because the sector is as diverse as it is, what is a significant event for a charity with a turnover of over €10 million is very different from a significant event for a charity with a turnover of €100,000. In essence, one of the things we seek in the proportionality, the balance and the fairness we are looking for from regulation is that support from the regulator to advise in all these instances what would constitute a significant event. That will be different depending on the nature of the service and depending on the scale of the enterprise being undertaken.

Mr. Ivan Cooper

Deputy Ó Cathasaigh has raised some key points about the ability to delist charities, the reporting of significant events, which Ms Myler has spoken to, and using a sledgehammer to crack a nut. In summary, and in general, the thrust of our submission is about the requirement to ensure that the regulatory regime enhances and supports a culture of support for charities rather than a culture which appears to be facilitated by this or by certain provisions in this general scheme, which seems to have to do with empowering the regulator to take action against charities rather than working and discussing with charities to arrive at productive solutions to the challenges the sector and individual organisations face. We really do not want a culture of fear coming to predominate where trustees feel themselves subject to the power of the regulator. The important controls currently in place regarding having to go to the High Court, for example, and regarding decisions to delist were carefully put in place when the original Charities Act was enacted.

They were there because it recognises that the system depends on the willingness of trustees to put their own reputations at stake as well when they step forward to do this public service. We do not really understand where the problem is with the current regime in regard to the powers the regulator already has, which are very significant, and why the need is felt to move so quickly to these powers of delisting or deregistering charities from the regulator. It almost as though, as Deputy Ó Cathasaigh alluded to, the regulator will be empowered to move to having the ability to deregister a charity without having to go through vital steps of due process that we believe are there.

In a general summary, the points have been captured well and Ms Myler elaborated on a couple of them. The main observation we would make is that it appears this legislation is moving, in a kind of unwarranted way, towards giving the regulator even more discretionary powers than it has. That will result in trustees and charities feeling themselves - this is about feeling - to be potentially subject to fairly unlimited powers that I think would lead, in any constitutional circumstance, a reasonable person to say it is an awful lot of power to give an agency, entity or regulator over important organisations, especially when they are dependent on people being willing to come forward voluntarily and do this important work for us.

Ms Alice Murphy

I will not restate the opinions of the other speakers, with which I agree. Nevertheless, as a charity lawyer, coming at this strictly from a legal perspective, the removal from the register, as drafted within the legislation, requires no reasons for a removal. From a legislative robustness perspective, at the very least, inserting a requirement for reasons would be helpful. Taking a forensic look at the long list that currently applies whereby removal can be invoked as a sanction, we can clearly see some offences that are disproportionate to the sanction of removal. There is an offence of refusing or neglecting to ask the Charities Regulator whether a charity may make a change to its name. Many charities make changes to their name each year. At the moment, as drafted, our legislation provides for an automatic removal from the register for a charity that fails to seek approval for its name change. It is our view at Mason Hayes & Curran that the full list of events that can result in removal ought to be scrutinised, that only events that are proportionate to the sanction should be included at all, and that a process backed up by an obligation to provide for good reasons should be instituted.

I might comment briefly on the provision relating to “significant events”. Efforts have been made in the Bill to define the phrase "significant events" but three quite general definitions are given, including loss of property and, even more broadly, something that may have a reputational risk for the charity. We had some concerns about the broad nature of those definitions. I am sure work could be done to specify what type of event is a significant event. Having conducted some comparative analysis with similar legislative regimes in charity law, we noticed that generally in other jurisdictions, the obligation to report a significant event is put into guidance from the regulator. From a policy perspective, one might think guidance from the regulator, which can be easily amended over time, might be a more appropriate home for this obligation of reporting a significant event rather than primary legislation, which is so difficult to amend. Furthermore, in the other jurisdictions, the requirement is not retrospective and charity trustees are not required to make a compulsory report on something that might occur in the future. From a legal certainty perspective, that is very difficult and certainly quite chilling.

Deputy Marc Ó Cathasaigh

You would be terrified to open your mouth at a board meeting because it would be minuted and you would then be obligated, no matter what the concern you raised was, to report it. What will happen is that people will not raise issues at a board level.

Ms Alice Murphy

Yes, or a flood of incident reporting will become the norm and every charity might decide there is potential for reputational risk and move to send in a report. We have to think of the integrity of the processes within our regulator, which does such great work with limited resources.

Mr. Ivan Cooper

On the “significant event” point, the impact of it will be, as has been articulated, that in decisions at board level, board members and trustees individually will wonder who is going to make the judgment about what is or is not significant. If something is not reported that may be coming down the line, the regulator could conceivably be in a position to determine post hoc that it was a significant event that should have been reported to it. When trustees are making decisions, they will say they cannot take a chance on something that could be significant and, therefore, will report it. That will add to this general culture of suspicion and worry among trustees.

Finally, while there is not a direct connection between the two provisions, there is something else worth observing here. As Ms Murphy noted, a provision will remove the requirement for the regulator to report to the Garda what it suspects might be an offence under the Charities Act. One way of understanding that might be that it will remove from the regulator a requirement to report a significant event to the Garda, yet at the same time, and in the same legislation, the regulator will be given a power to insist that charities report to it significant events that may or may not occur. There is a sense there will be a diminution of the extent to which the regulator itself will arguably be accountable or connected to the system while, at the same time, the requirement on charities to report significant events to it will be increased. It is worth understanding that, fundamentally, this is probably the most worrying aspect of the draft legislation, as it stands.

Chairman

Mr. Cooper made a point about significant events and the culture that provision will create at board level in regard to suspicion and worry. Will he elaborate on how that would impact on the day-to-day operation of the board, coming back to the comment Deputy Ó Cathasaigh made about people being afraid to express a concern at board level because they will feel that all of a sudden, there is an obligation on them to report to the regulator? What will be the practical reality of that? If individual board members are reporting issues to the charity regulator, it will create within any board an issue of suspicion and worry. How, realistically, can a voluntary board, in particular, operate on a day-to-day basis if that type of culture exists at that level within the organisation?

Mr. Ivan Cooper

It would have a very significant impact, along the lines Deputy Ó Cathasaigh suggested. A chilling effect is one way of understanding it. Board decisions are minuted. Many have argued, under freedom of information, FOI, provisions, for example, that the quality of discussion and record-keeping has been negatively impacted in some respects in the context of FOI and how that operates. What is and is not significant is an important consideration in this regard. If there is a sense that the outcome of the conversation may be that what we thought is not significant and will be recorded in minutes as a conservation having taken place about something, which then is not reported, that may have a back-up effect whereby people will be unwilling to raise an issue for fear of the fact there will have to be a discussion about it, which will be minuted in due course and so on.

We feel that to protect against that, given trustees behave in ways that have to do with high levels of integrity, the logic is that all these discussions will, in fact, take place, but that the more likely outcome is that organisations will feel they will have to report.

Rather than suppressing interaction at boards, we feel that the more likely outcome would be an over-reporting. This is probably what will come out of it. Associated with that over-reporting will be worry and alarm. This is the issue. This is how it will manifest. It will manifest in the hearts and minds of trustees about the fact that they have to report something to the regulator, for which there may now be consequences because they would not be willing to take the risk of not reporting something, which then subsequently turns out to be significant.

Under the legislation in the UK there is an obligation to report serious incidents, which is past tense and stuff that has happened and not stuff that may happen or will happen. We believe this may be a more apt and appropriate solution, which would make it clear that trustees have an obligation to report on stuff that has happened rather than stuff that may happen.

Ms Áine Myler

Many of the members present have probably been on boards and they would see and understand the dilemma they might find themselves in if they were faced with this. I am on boards myself. I have a board meeting later on which I am facing into as a CEO. One of the things before my board today is its risk register. I believe that this is going to become a very significant part of what the risk register is going to look like for our organisation. We will probably spend most of our board meetings talking about what could be or was or possibly will be, a significant event if the definition is not properly captured in any legislation that we pass.

Another aspect we have brought out in our submission is the time spent on governance and, obviously, the cost of governance. My board would probably suggest that we seek some legal definition on this and some legal advice on this. This all takes away from the operational planning, the strategy and the delivery of the services that the boards and people who work for charities want to deliver. I completely agree with the scenario that Mr. Cooper has built beforehand. I do not relish a board meeting where, in fact, I am going to spend most of it either managing or talking about hypotheticals. We are all in it to actually work and deliver the services that people need around the country. I believe we have laboured this point at this point in time but it is well worth talking about.

Deputy Paul Donnelly

I thank the witnesses for coming before the committee today and for the meeting we had recently to go through a lot of the amendments. It is very helpful to get that deeper understanding of where the charities are coming from.

There are three words: it must be transparent, fair and proportionate. If we can get those right it will be a really good Bill. That is what we are working towards. This really helps to get that stage.

I am involved in boards and have been involved in boards for many years. If boards are to spend their time thinking about what could possibly happen as a significant event that we would have to report, it would just cripple the boards, it would cripple conversation and cripple the agendas because boards would literally just be talking about what could potentially happen in the future that board members are personally responsible for. People go onto boards and get involved in community organisations because they want to help and to support their communities, whatever their interest may be.

I am interested in the name change scenario. We were only chatting about this yesterday. I am on the board of a community drug team. We have changed our name from a local organisation to being the Dublin 15 Community Drugs Team. For us that was a really simple thing to do because we had been asked by the HSE to broaden the area that we cover. If we had the conversation about this, about what the implication would be if we changed our name, we would have to report that. It is just a simple thing where one agency is telling us that we must do this because now we are covering a bigger area, but the Charities Regulator could possibly sanction us for changing the name because we did not tell them.

There is a lot of good stuff in the legislation but I believe there needs to be a series of amendments to it. The point about the hammer cracking the nut is a very important one. We must understand that while there are very large organisations with huge resources, their own legal teams, chief executive officers and chief financial officers, then there are organisations like ourselves that have a co-ordinator. That person must manage staff. He or she must manage budgets and the board, get ready for board meetings, and do the day-to-day stuff, including clinical supervision. There is a list of things that this person has to do. If we overburden this person with more and more regulation, the chilling effect would have a real impact on trying to encourage people to come into the community and voluntary sector. This is from an employee perspective. It would be even more difficult, and it is more difficult, from a board of management perspective when one is trying to encourage people to get involved in boards.

I am involved in the compliance and governance part of the board. There are reams and reams of documents involving, for example, the HSE and Tusla. It is endless. There could be 30 or 40 documents that one must then present as part of the service level agreement at the end of the year, for example to the HSE, if the funding is from the HSE. The organisation must go through all of those and all of the staff must understand them. It is fine: I understand that this is part of the environment and all of those are there because of learned experiences and because something has happened, which means that we must put this sort of compliance in place. We must, however, be very careful that we do it in a way that is supportive and so it is not something that is going to put people off. This is very important.

A lot of the stuff I wanted to talk about has been covered and I will not go over it again. There is one aspect that I find a little bit difficult, which is head 29 and personally connected people. For me this is a difficult one. I can understand where it is coming from because in the context of charities, you do not want nepotism going around or the giving of contracts to people in a process that may not be as open and transparent as it possibly could be. We need to tease that aspect out. I am still a little fuzzy about that part. It is the only part I would look at now because a lot of other points have been covered so far.

Ms Alice Murphy

Head 29 is related to section 89 of the Bill. There is already a section 89 of the Charities Act on the Statute Book, but because this is a very vexed issue it was never enacted and never commenced. The legislators, the regulator, advisers and policy experts have all given a lot of thought to this. The new section 89 runs to some 20 subsections, so it is really trying to deal with an awful lot.

I agree with the Deputy that this is a tricky matter in governance terms. As was mentioned at the outset, in a forum like this we invariably focus on the thorny issues. That is not to say that the concepts and the principles of section 89 are anything but quite correct, good and positive.

In the way the section has been drafted, we do collectively have some worries. Our first worry centres around the fact that as currently presented, the new section 89 requires an advanced approval for any circumstance in which someone who was on the board is being paid by the charity, even where they are being paid not for sitting as a trustee but for something else that they do for the charity. There is what we would term a "clean slate" approach taken where the section is written as if no charity in the country has anyone on the board who was also doing something else for that charity. Therefore, the way it is written says that if an organisation would ever wish for that to be the case in their charity, first they must go to the regulator to seek advance permission.

This is the biggest issue. Throughout the third level education sector, healthcare and many other sectors, we have people on the boards of charities who are employees of those charities and work in them or people who have some class of an arrangement with the charities. We always use the fictional example of someone owning the photocopying company that leases the photocopier to the charity. Two categories of arrangements already exist. The first category is very straightforward whereby the CEO is also on the board. In some cases legislation requires this, particularly in education. It is premised on there being executive and non-executive board members. To take such an institution, if the Bill as drafted is introduced, this will no longer be permitted and the charity will have to go to the regulator for advance approval. There is no clean slate. Imagining this does not already exist is a drafting problem. It exists and we cannot have large charitable organisations stymied on day one of the legislation with their CEOs not knowing whether they can attend the meetings. They must do so under one Act while the new legislation states they cannot do so. This is quite a big worry.

Other provisions we believe are suboptimal arise in other subsections. The notion of a link was mentioned by the Deputy. The definition of the personal connection is very broad. We all understand why, generally, good governance practice might suggest that contracts for big expenditure are not given to someone on the board. This is very well understood. In large measure charities in this country are run on a shoestring. There are circumstances where, for example, a builder on a board will say a job will be done at cost while other builders could not do this and it would cost three times as much. To follow this fictional example, if the building is falling down and the charity desperately needs to rebuild it for its vulnerable service users, waiting for advanced approval from the regulator would be fine if the process is swift. The regulator's resources are limited and routine applications of this nature in other areas can take three to six months. We can see the problems this could cause.

Another worry we have about this section is that the definition of a personal connection is especially broad. If somebody sitting on the board has another business with a business partner in another field entirely, we could find that the charity could not procure a service based on the definition as it is at present. I regard these issues as more technical. The principal concern we have is the issue of a slam dunk date when all of sudden we find that charities throughout the country are in breach of the law.

Chairman

I want to turn to a broader issue. I have had plenty of personal experience of dealing with regulators. In general, among regulators in this country there has very much been an ethos of a top-down and directional approach rather than engaging in an advisory approach. This is across the board with regard to regulators in the country. The culture has been very much about compliance with the law rather than assisting the organisations being regulated and facilitating them in complying with the law. While this is all well and good in terms of regulating corporate bodies, and we have had plenty of instances where corporate bodies immediately challenge a decision through the courts to prolong the process, community organisations and family-run businesses do not have these resources and end up in situations where they have been forced to close because of the lack of engagement and the culture that exists.

My next question is more from Ms Murphy than anyone else but I invite the other witnesses to come in on it if they wish. Ms Murphy has reviewed the experience of regulators in other jurisdictions from a legislative approach. With regard to a culture approach, did she come across an example of a regulator that has been more co-operative and acted in a more supportive role rather than in a policing and enforcement role? Is there a good example or template we could use? Sadly, we do not have a good example here in this country. My experience over the years in this jurisdiction is that regulation operates through fear. This is across the board in all of the sectors of which I have had experience.

Ms Alice Murphy

Charity regulation in Ireland is reasonably young and new. Historically, those of us involved in charities going back a long time remember when the Revenue Commissioners used to set some rules. A proper statutory framework for the regulation of charities only came in with the Charities Act 2009, which was only brought into law on 16 October 2014. We have approximately eight years of charity regulation here. I believe our regulator has leaned on the older legislative regimes in common law jurisdictions. We often look to the Office of the Scottish Charity Regulator.

With regard to a friendly, supportive and meaningful regulatory framework that is of assistance to charities in keeping themselves going, the presence of guidance is very useful in addition to primary legislation. It is my view that primary legislation can only go so far in tackling what the Chair is speaking about with regard to the approach. We will never nail culture and approach in primary legislation. We can go an awful lot further in the establishment of a supportive framework through soft law instruments such as guidance. An example is the regulator's website stating a charity can come to it. The Scottish regulator does well on this front. The Charity Commission for England and Wales is an equally good benchmark with a more established regime.

Our regulator has gone a huge way in the past two or three years in the production of guidance to help trustees. I would venture to suggest that whether a given regulator operates as a police officer or as a supportive oversight body will probably not come down to the words on the page of the Act. Naturally, we adopt Deputy Donnelly's transparent, fair and proportionate approach. In a review of the legislation, we should certainly remove provisions that are clearly disproportionate and clearly unreasonable. With the best will in the world, in the development of the legislative framework, we must rely on the regulator and the office of the regulator to take the legislation and interpret it in a fair and supportive way rather than taking the legislation and deciding it now has three powers and coming down hard on every minor issue that comes on the desk. It has to be led by the regulator's office.

Ms Áine Myler

I am on a State board that delivers regulation. I agree entirely with Ms Murphy. The culture and approach is often set on the board of the statutory body. The question is whether the resources face towards compliance or towards guidance, protection and promotion. The primary legislation has a role to play in delivering the balance and transparency. There is an opportunity to provide positive obligations on a regulator in the legislation. As we redraft the legislation, we have an opportunity that we welcome. There is always the question of resources to deliver these actions. The tone and culture is set at the board of the regulatory body.

Very recently we, along with The Wheel, and other organisational entities operating in the charity sector, had a very good discussion with the regulator about setting up a stakeholder forum. We believe this will deliver part of that feedback from the sector to the regulator, and the interaction that is required to create this culture of transparency and accountability, and for us to be the watchdogs on behalf of the regulator for trends that are occurring in the sector. We are really looking forward to its establishment, and we hope to be able to feed into it too.

Chairman

We will move on to Mr. Cooper.

Mr. Ivan Cooper

I would like to tie a few of those contributions together. We fully support regulation in the public interest, and have no issue with regulation per se, but it is all about the nature and approach of the regulation. The regulator has an obligation and its primary objective is to increase public trust and confidence in charities. That requires a balance. There is an element of holding to account and setting and ensuring standards, and that is what this hard piece is about in relation to the legislation, but there is a piece to which the Chair has alluded in relation to supporting organisations. That is very important as a component. There is also a worry that in the background to the proposals we have on the table here, there might be a sense of the cliché that hard cases make bad law. Therefore, what is going on here, although unsaid, is that the regulator is making up for the fact that it perhaps felt it did not have sufficient power at a specific point to deal with a handful of hard cases that are unlikely to occur in any kind of similar way again, especially as the sector has been culturally adjusting to the standards that are now there in relation to charity regulation and governance. It would appear that the balance in this draft legislation is wrong at the moment. There is too much emphasis on giving the regulator more powers. It is almost like the regulator will become ever present in the mind of trustees when going about their daily business, to an extent that will cause worry and fear, and a reluctance to become involved. We just need to be really careful in relation to how we move from here.

The Cathaoirleach captured it very well. We do not believe there is anything that fundamentally prevents the regulator from taking a more supportive approach, if that is what it chooses to do, and we would encourage it to do so. Ms Murphy mentioned a debate when the original charities Act came in as to whether the regulator would be a policeman or a pal. However, being either completely will not work. The art of the regulator is to be both policeman and pal. We think it is possible in relation to this draft legislation to make the amendments we are suggesting to get a better balance. Legislation or law determines culture. Culture can often result from that. Structures and processes determine the way we do things around here so it is really important that we get that right.

I will make a final observation. There is this reality that applies across other regulatory regimes, where authorities and powers attempt to shift risk away from themselves in all circumstances. It is a process of general risk shifting. I am sure members are all aware of difficulties in the insurance market at the moment and the problems many organisations are having finding insurance. It is the same culture of risk shifting that prevails. How that manifests fundamentally is that if regulators are unwilling to share a degree of the risk on behalf of the sectors they are regulating, then services are removed or disappear. Fundamentally, it is individuals, families and members of communities who are reliant and depend on the services provided by charities governed by trustees who will suffer if we find people walking away and if charities have to invest disproportionate amounts of times and energy in over-focusing on eliminating risk, which cannot be done. We all know that risks cannot be eliminated. We need to have a risk appetite, and trustees cannot be punished for determining that there are risks that they wish to take, which they do not have to report as significant potential events to the regulator.

Chairman

Thank you very much, Mr. Cooper. You are correct that it is important that we get a balance here. There has been a handful of bad eggs and a handful of very high profile cases. However, as Ms Myler, pointed out, this legislation has only been implemented for the last eight years. In particular in the charities sector, much of the financial side of it has been in abeyance for the last couple of years because of Covid-19. We are talking about a very narrow window of application for this legislation. One of the key questions here is whether the bad eggs we have seen over the last couple of years are an overhang from the lack of regulation up to now or as a result of weak regulation that we currently have in place. That is something the committee is going to have to tease out both in terms of the general scheme before us and the legislation when it comes before us later in the year.

I thank the witnesses for the evidence they have provided this morning, and for their engagement with colleagues over the last number of weeks and more particularly for the detailed submission they have provided. This is very helpful as guidance to the committee in terms of us coming to a conclusion with regard to the pre-legislative scrutiny, but also in terms of informing us in advance of the legislation itself coming forward. Witnesses should feel free to come back and engage with the committee, and bring back further issues of concern they have at the stage of pre-legislative scrutiny, and after the legislation itself has been published. It will assist individual committee members and the committee as a whole in ensuring what we all want, which is robust legislation that ensures we have a strong vibrant charity sector in this country into the future and that we have legislation that stands the test of time. I thank the witnesses for their time this morning.

The committee is going to move into private session.

The joint committee went into private session at 10.38 a.m. and adjourned at 11.10 a.m. until 9.30 a.m. on Wednesday, 5 October 2022.