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Overhauling the regulation of the fundraising sector

Overhauling the regulation of the fundraising sector

Just like London buses, the woes suffered by the charity sector over the summer all arrived at pretty much the same time. Widespread allegations of inappropriate fundraising methods and accusations of data protection breaches were topped by revelations of financial mismanagement at the Kid’s Company and its subsequent closure.

But it was the perceived poor fundraising behaviour of many charities which drew much of the public’s ire, prompting a review of fundraising self-regulation by a cross-party panel of peers. The review panel, which published its findings in September, concluded that the current system of self-regulation was inadequate (the Independent described it as ‘weak’) and, in order to regain the public’s trust, charities’ fundraising operations had to be more robustly regulated.

Self-regulation with teeth

The review panel did not recommend introducing a statutory regime: to do so would be expensive and time consuming. However, it recognised that the current system of self-regulation, overseen by a number of different membership bodies with overlapping responsibilities, is inherently weak and lacks teeth.

Relying on a membership organisation to regulate the activities of its members (which fund it) is tantamount to biting the hand that feeds it. Under a non-statutory, regulatory regime, with limited enforcement capabilities, ensuring compliance with good practice guidelines can be difficult.

It was proposed that a new body, the Fundraising Regulator (FR), will replace the Fundraising Standards Board (FRSB) and will take over the Code of Practice from the Institute of Fundraising (IoF). The FR will be accountable to Parliament (via a select committee) and will take over the handling of complaints from the Public Fundraising Association (PFRA) and will have increased sanctions at its disposal for the non-compliance. It is proposed to restrict the latter to non-monetary sanctions such as naming and shaming, compulsory training, and the clearance of future fundraising plans. Finally, the panel recommended the creation of a Fundraising Preference Service allowing donors to opt-in. Rather than being funded by its members, the FR will be funded by charities with more than £100k fundraising income a year, and backed by the Charity Commission, a statutory regulated body.

Governance and the role of Trustees

The role played by trustees and senior managers in the oversight of fundraising activities was also reviewed. Trustees are legally bound to act in the interests of the charity and to ensure that any funds raised on its behalf are spent in accordance with its charitable objectives. How that money is raised in the first instance does not, at present, come under their legal remit although they should ensure that the charity is complying with the Code of Practice and behaving ethically.

The proposal that trustees should be more engaged with fundraising activities is simply an acknowledgement of the importance of fundraising in the relationship between a charity and its supporters.To remedy the perceived disconnect between some trustees and fundraising behaviour, the Charities (Protection and Social Investment) Bill, currently going through Parliament, contains a requirement for all trustees of charities with an income of over £1 million to report annually on their charity’s approach to fundraising, their use of third party fundraisers and the steps they have taken to protect vulnerable people from overzealous fundraising. This is important: transferring the onus for responsible fundraising activity to the trustees will help to give additional backbone to the self-regulatory regime.

Role of other regulatory bodies

The review panel recognised the crucial part played by statutory, regulatory bodies in charities’ fundraising efforts. It has requested the Information Commissioner’s Office (ICO) to produce guidance specifically for charities on data protection and their role as data controllers. Breaches of the data protection rules attract substantial fines and it would appear that not all charities are fully aware of their obligations under the Data Protection Act. This becomes even more crucial for charities employing third party fundraisers who need access to supporters’ data and are thus acting as data processors.

Under the Data Protection Act, the data controller is responsible for ensuring the data processors are acting in accordance with the eight data protection principles and have a contract in place which explicitly defines their obligations under the Act.

A more robust regulatory regime which ensures that all charities comply with best practice should help to restore public confidence in the sector after a pretty rough ride. Any help the Fundraising Regulator can provide in helping their members to comply with statutory duties, such as data protection, will also be warmly welcomed. The charity sector is big business now, and the public know that. This means that they expect a greater degree of professionalism and correct behaviour – particularly where third parties are involved. The sector might yet have cause to be thankful for their annus horribilus if it helps to restore their credibility in the eyes of those on whom they rely for their funds.

 

Rachel Gwynne is a lawyer with Wright Hassall LLP. She provides specialist corporate governance advice and support to not for profit organisations including a wide range of charities, social housing providers, trusts and voluntary organisations.

 

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