26 October 2015
The Etherington report proposes serious changes to charity sector regulation
It has been impossible to miss the unprecedented amount of press coverage criticising fundraising in the charity sector over the last few months. Following the events surrounding the death of Olive Cooke and allegations of charities selling their supporter’s data, the methods used by charities to fundraise have come under intense scrutiny. As a consequence, legislative changes have been proposed and multiple reviews and enquiries have been launched to investigate the effectiveness of the current system of self-regulation. Perhaps the most high profile of these reviews is that conducted by Sir Stuart Etherington, Chief Executive of the National Council for Voluntary Organisations (the Etherington Review).
The government commissioned Sir Stuart Etherington to assess the effectiveness of the current self-regulatory system of charity fundraising. The review looked at regulation in other sectors, the needs of vulnerable people and the needs of the sector itself. It also assessed the methods currently used to set standards of conduct. Sir Stuart Etherington and his team published their report on 21 September 2015, setting out proposals for wide-ranging reforms for the regulation of fundraising.
The current system of self-regulation involves three main bodies: the Fundraising Standards Board (FRSB), the Institute of Fundraising (IoF), and the Public Fundraising Regulatory Association (PFRA).
The FRSB was established by the sector as a voluntary regulator for charitable fundraising. Charities and other organisations involved in charitable fundraising can (but are not obliged to) become members of the FRSB and commit to abide by a ‘fundraising promise’ and the Code of Fundraising Practice (see below). The FRSB can deal with complaints from the public and, where the organisation concerned is a member of the FRSB, it works with the organisation to resolve that complaint. If the organisation concerned is not a member, the FRSB is unable to act and must refer the complaint to another regulatory body.
The IoF is a professional membership body for fundraisers in the UK. It publishes and updates the Code of Fundraising Practice (the code). The code represents standards set by the fundraising community based on the principles of ‘openness, honesty and respectfulness’. It includes the legal requirements which must be complied with, alongside good practice recommendations which go beyond the legal requirements. The FRSB, as a result of its work, may recommend amendments to the code which the IoF will adapt.
Finally, the PFRA provides specialist compliance, enforcement and allocation services to its members for street and door-to-door fundraising. It enforces the street and door-to-door rulebooks which are specialist versions of the code. The PFRA negotiates agreements with local authorities on behalf of its members which limit street and door-to-door fundraising. It also has a mystery shopping programme and penalty points can be imposed on members.
The current system also involves a mixture of statutory regulation (for example, data protection, rules about lotteries and certain charity collections) and self-regulation (for example, direct mail is regulated by the Direct Marking Association and the Mail Preference Service, and non-cash face-to-face fundraising is regulated by the PFRA).
As highlighted by the Etherington Review, the current system is subject to much criticism, notably for being unnecessarily complex and badly resourced – there are too many bodies involved whose role and scope overlap. Self-regulation is also under-resourced and the bodies involved are unable to provide adequate training and support.
The bodies mentioned are reliant on their members for funding and this can cause potential conflicts of interest, whether when updating the code or investigating complaints. The lack of sanctions available to the FRSB has also been highlighted as a weakness of the system.
Given the wide-ranging criticisms described above, it is not surprising that the Etherington Review recommended a wholesale reform of the system. On 3 October, Rob Wilson, Minister for Civil Society, announced that the government accepts all of the recommendations made by the Etherington Review and therefore it is highly likely that the changes proposed will come into force.
The report recommends a new approach to fundraising regulation on a ‘three lines of defence’ model: trustees, the new Fundraising Regulator and relevant industry statutory regulators. One of the concerns highlighted by the report is that charity trustees are not taking an active role in overseeing fundraising and that there is a perceived disconnect between a charity’s values and its fundraising. The statutory regulators (such as the Charity Commission in England and Wales) will highlight the responsibility of charities to support the Fundraising Regulator and act as a ‘backstop’ where there are also concerns about breaches of trustees’ duties. The review also envisages that the Fundraising Regulator will work more closely with the statutory regulators. The Charity Commission in particular has welcomed the focus on the role of charity trustees and has already announced that it will be reviewing its guidance, Charities and Fundraising (CC20), in light of the review.
The Etherington Review proposes that a new regulator, the Fundraising Regulator, replaces the FRSB. This body will regulate all fundraising by UK-based organisations (not just its members) and will be responsible for all complaints about fundraising. It will be independent from, but accountable to, Parliament. The Fundraising Regulator will be financed by a levy on fundraising expenditure. This will be a graduated levy applying to organisations with an annual expenditure of £100,000 or more. It will be able to impose a wide array of sanctions including naming and shaming, cease and desist orders and compulsory training. The review does not propose that the Fundraising Regulator will be able to impose fines, as this could harm donors and beneficiaries.
The Fundraising Regulator, rather than the IoF, will oversee the code and it is intended that this will increase public confidence. There will be a single consolidated code incorporating the PFRA rulebook and this will refer to guidance produced by the statutory regulators, such as the Charity Commission and Information Commissioner’s Office. A Fundraising Practice Committee will be created which will be responsible for setting the rules in the code and updating them. This committee will include members with fundraising and legal expertise and donor and public representation.
Charities will still be able to register with the Fundraising Regulator, although non-registration will not prevent the Fundraising Regulator from imposing sanctions upon charities. Those who register will be able to display a badge to show their commitment to fundraising standards, similar to the current FRSB tick.
Although supporting the report’s overall conclusion that self-regulation in its current form is not working, the FRSB has disputed its closure, arguing that a revamped and properly resourced FRSB would be the most cost-effective way of developing better regulation of charity fundraising.
The IoF and the PFRA will merge and focus on encouraging good practice and supporting fundraisers. The new professional body will also represent fundraisers on the Fundraising Practice Committee.
The IoF and PFRA have welcomed the proposal for their merger and the role they can play in representing and training fundraisers, championing best practice and helping charities to comply with the highest standards of fundraising.
One of the key frustrations of the public in relation to charitable fundraising is the lack of control over how many times they are asked to donate. The Fundraising Regulator will create a ‘Fundraising Preference Service’ where individuals can register if they no longer wish to be contacted for fundraising purposes. Any organisation involved in high volume fundraising would need to check this list before beginning a fundraising campaign.
Rob Wilson has highlighted that this will mean that ‘anyone inundated with fundraising marketing material will be able press “reset” and stop receiving this material.’
The new Fundraising Regulator cannot be viewed in isolation. The government has also proposed amendments to the Charities (Protection and Social Investment) Bill which is currently before Parliament, to require large charities to be more accountable and transparent about their fundraising. It is thought that these amendments will also help improve the image of charitable fundraising.
At a time when charities are facing criticism in the press, not just for their fundraising ‘tactics’, it is crucial that steps are taken to rebuild public confidence in fundraising undertaken by charities. For the charitable sector, reliance on voluntary income is increasing as government funding is reduced and organisations are forced to provide support which was previously provided by statutory agencies.
The government, IoF, PFRA, Charity Commission and major charities all welcome the reforms as these measures will increase trust in charities and further strengthen charitable giving. It is also hoped that the new Fundraising Regulator, along with the government amendments to the Charities (Protection and Social Investment) Bill will increase protection for vulnerable people.
As the Etherington Report highlights, ‘Britain is a generous society, characterised by a long and well-established tradition of charitable giving and philanthropy.’ Nevertheless, it is essential that charities continue to work to strengthen the public’s trust and treat donors in a responsible, respectful manner as long-term partners, not short-term opportunities to be exploited. It is hoped that the new Fundraising Regulator and accompanying regime will ensure that charitable fundraising, and the vital work that it supports, is sustainable.
Chris Priestley is Partner in the charities and philanthropy team at the law firm Withers LLP