Charity law firm Stone King has said that the proposals in the Etherington Review aren't strictly ‘voluntary self-regulation,’ and that it could be beneficial for trustees to move to an ‘opt-in’ fundraising model.
The report, Changes to charity fundraising, seeks to answer two questions posed to Stone King by nfpSynergy from a charity law standpoint. The questions put to Stone King were:
- “Whether the proposals that came out of the Fundraising Review by Sir Stuart Etherington are self-regulation (ie charities can decide whether to join voluntarily) or they are statutory (ie they must join by force of law).”
- “What are the implications for trustee’s fiduciary duties in voluntarily joining a scheme which would see their charity’s income reduced? My understanding is that charities should endeavour to maximise their income except in certain circumstances related to their objects (eg ethical investments). However by joining the Fundraising Preference Service a charity could see its income dramatically decrease (or initially just have the risk that their income would decrease) by stopping it from communicating with a portion of its donors.”
Is the Fundraising Regulator really a form of voluntary self-regulation?
The Fundraising Regulator will not be a voluntary self-regulator because “all charities which fundraise will be subject to regulation” and will “be subject to sanctions by the regulator if a breach of the industry standards is found”.
If the Fundraising Regulator is to regulate all fundraising charities, it should also “have a universal remit in relation to all organisations which carry out fundraising activities” including not-for-profits and fundraising agencies.
The Fundraising Regulator having ownership of the Codes of Fundraising Practice is a problem legally because “the organisation responsible for enforcing the standard will be directly involved with setting that standard” which will leave charities with limited scope for appeal.
Any new standards set by the regulator's Standards Committee will need to be “very clear and also applicable to all charities”, a likelihood which “is going to be very difficult to achieve”.
Will the recommendations affect trustees' fiduciary duties?
Charity trustees do not “owe a wider duty to take into account the interests of the voluntary sector as a whole”.
It is currently legal for charities to continue using “opt-out” fundraising models, until such time as any EU directives take effect. However, “the reputational issues of continuing with that approach” should be taken into account.
Trustees would still be acting in the best interests of their organisations and beneficiaries if they were to voluntarily move to an ‘opt-in only’ model, “even if it may in the short term reduce their charity’s income”.
Moving to an ‘opt-in’ fundraising model could potentially be beneficial for individual charities regarding the proposed Fundraising Preference Service as “without a specific opt-in, anyone registered with the FPS could not be contacted, and a failure to ‘opt-out’ would not be sufficient to override FPS”.
“The new regulator will have extensive powers over all fundraising organisations in order to ensure that best practice is followed. Trustees will have difficult decisions to make in terms of fundraising practice more generally," Stone King's response said.
“The way charities approach fundraising must change in order to both accommodate the potential new regulation and redress the damage caused to the reputation of the sector by recent events.”