53.Fundraising in the charity sector is currently regulated through three membership bodies. The Institute of Fundraising is responsible for maintaining the code of fundraising. The Fundraising Standards Board receives complaints about how charities have raised funds and adjudicates on whether complaints which the charity cannot resolve arose from breaches of the Institute of Fundraising’s code. The Public Fundraising Regulatory Association sets the code for and regulates face to face fundraising.
54.Each of these three bodies is appointed by the sector. The Institute of Fundraising and Public Fundraising Regulatory Association are both professional membership bodies and their members elect their board. The Fundraising Standards Board is also a membership organisation but its board is made up of representatives from leading organisations within the sector, such as the Charity Law Association, the Scottish and Welsh Councils for Voluntary Organisations and other regulators.
55.The Fundraising Standards Board currently has 1,952 members. The Institute of Fundraising currently has 5,400 individual members and 400 organisational members.This is a small proportion of the 164,889 charities which are registered by the Charity Commission in England and Wales, and even of the 10,619 of those with an income over £500,000. The Public Fundraising Regulatory Association has 166 members, of which 126 are charities and the other forty are fundraising companies.
56.In 2002, the Cabinet Office’s Strategy Unit produced for the then Prime Minister, Rt Hon Tony Blair, a review of charity law and charitable status. The review recommended the simplification of the regulation of fundraising. It concluded that “a self-regulatory scheme which the sector itself helps to set up and run has the best chance for success”.
In 2006, the Government passed the Charities Act. The Act established the regulatory scheme described above. It also granted Ministers a reserve power to step in if self-regulation failed. The Act also laid down that, after five years, the Government would commission a review of the regulatory system’s operation to check that they were still fit for purpose. Baroness Scotland, speaking in support of the Bill in the House of Lords, commented that the Government wished to “sustain high levels of public confidence in charities through effective regulation”.
57.In November 2011, the coalition Government appointed Lord Hodgson of Astley Abbots to undertake the review required under the 2006 Act. Lord Hodgson’s review was not limited to fundraising, but covered the entire operation of the Act. In 2013, PASC published its Report on the operation of the Charities Act 2006 that covered, amongst other subjects, the self-regulation of fundraising.
58.Lord Hodgson’s review and PASC’s report made a number of similar points. Both Lord Hodgson and PASC agreed that regulation of fundraising required simplifying,and that the current regulators needed to build public awareness of their work. Both reports recommended that the Charity Commission should be more involved in promoting the self-regulatory system to ensure that public trust and confidence in the sector was maintained.
59.In January 2013, after the publication of the Hodgson review, the then Minister for Civil Society, Nick Hurd MP, convened a meeting of the major regulators of fundraising.A review, led by PWC and partially funded by the Cabinet Office, was established to consider how to simplify the regulatory structure. The review reported in 2014 and made recommendations about collaboration, including the creation of a shared overarching strategy, a shared communications strategy and improved communications between the three existing regulators. It did not recommend the creation of a single regulator.
60.As the allegations made by the Daily Mail and Mail on Sunday have highlighted, the current fundraising regulatory structure is complex, confusing and lacks effectiveness. The Chair of the Fundraising Standards Board told us that “we do not have an effective regulatory structure for fundraising”. In particular, we were told that:
61.We also heard that the regulators have not coordinated their work with each other:
It is a matter of some disappointment that the Institute of Fundraising appeared to be resisting the reality that the direct marketing guidance did apply to the charity sector. We found a concern to find a balance between privacy of donors and the needs of charities and the good causes and so on. I have had to explain, “I am sorry, privacy is a fundamental right. The Privacy and Electronic Communications Regulations apply to all direct marketing and they apply to you.” But it took until, I think, 18 August to get the Institute of Fundraising to change the guidance they had on their website and to agree that the clarity that came from the 2013 Information Commissioner’s Office Direct Marketing Guidance really did apply to the charity sector.
62.The Institute of Fundraising say that most of the issues discovered by the media relate to compliance with the code, rather than the code itself. The fact that the three regulators themselves disagree about this point underlines the failure of the system. The Information Commissioner is right to be disappointed that the Institute failed include his guidance on their website until after last summer’s events.
63.The Etherington review proposed a single regulator to replace the three existing regulators, to demonstrate “a break from the past”. This was broadly welcomed by witnesses to our inquiry. Etherington proposed that the regulator should have
64.Sir Stuart Etherington proposed a hybrid system of regulation. The new regulator will be convened by the sector, maintaining the current system of self-regulation. However, the Charity Commission will act as a backstop to the new regulator, treating the failure of a charity to comply with its directions as a governance issue. We discuss the role of the Commission further in Chapter 5.
65.The review considered that statutory regulation of fundraising had several disadvantages, especially higher costs. Sir Stuart Etherington told us that statutory regulation would have increased costs for the sector and for the Government. He said
We are suggesting the self-regulator would cost around £2 million to £2.5 million. Probably if you did statutory regulation it would cost a bit more and of course it would fall on the public purse, which happens at the moment. It would cost a lot more, it would be more complex, you would need to ensure that they had the expertise to police this area of work. In some ways statutory regulation is a very blunt instrument in relation to what is quite a fast-moving field—fundraising. You also tend to get a little bit more litigation if statutory regulation is involved, so it becomes a little bit more litigious.
66.Self-regulation is also more flexible than statutory regulation. The Charity Commission told us that statutory regulation risked making the charitable sector an arm of Government. Fundraising is by its nature “fast moving” and any statutory code would require frequent amendment to keep up to date.
67.Rather than being a membership body, the Etherington review recommended that the new regulator be funded by the sector through a levy. He explained that, crucially, the regulator “[will] not [be] a membership-based organisation; there will be a levy on charities to support this. If it is a membership based structure it gets into all sorts of conflicts of interest”.
69.There was consensus amongst the witnesses to our inquiry in supporting the Etherington proposals. The Government is right to welcome the Etherington review. This is the last chance for self-regulation. It is essential that the Etherington system is made to work effectively, though it can only work by supporting effective governance by trustees.
70.Sir Stuart Etherington recommended that the Minister for Civil Society should appoint the chair of the new regulator who should in turn appoint the board. The Minister appointed Lord Grade, the former chair of Channel 4, to chair the new regulator in November 2015. On 16th December, Lord Grade appointed Stephen Dunmore as the interim Chief Executive of the new regulator.
71.On 4 December 2015, Sir Stuart Etherington convened a summit of major charity leaders (from the fifty largest charities), the Cabinet Office, the Institute of Fundraising, the Fundraising Standards Board, the Public Fundraising Regulatory Authority, the Association of Chief Executives and the Small Charities Coalition. The summit discussed the practicalities of implementing the new regime.
72.The National Council of Voluntary Organisations has been clear that the Etherington Review represents the first stage in a process. Sir Stuart Etherington said that the sector now faces the task of “taking the recommendations made and turning them into reality”.
73.Under the preceding arrangements, only the Fundraising Standards Board has a donor representative on its board. The Etherington Review proposes more interaction between industry, regulators and donors in two ways. Firstly the review says that there should be a donor representative on the standard setting committee convened by the new regulator. Second, it states that a Commission for Donor Experience should be set up. The Commission had its first meeting in November 2015. Sir Stuart Etherington proposes that a donor representative should be on the board of the new regulator as well.
74.Sir Stuart Etherington is right to propose, in addition to the donor representation envisaged in the review, that there should be a donor representative on the board of the new regulator. This representative could be appointed by a consumer representative body such as the Institute of Customer Service. This appointment would demonstrate the independence of the new regulator from the fundraising sector, and would help to guarantee that donor interests remain, as they should, at the heart of its view of regulation.
75.The review suggests moving the ownership of the code defining good practice from the Institute of Fundraising to the new regulator. As noted previously, we heard that at GoGen, fundraisers were attempting to raise money from vulnerable people, including people who were confused about what was happening. We were also informed about the case of Mr Samuel Rae, whose data was sold by leading charities. Mr Rae suffers from dementia and following the sale of his data by charities, media reports alleged that he was targeted by criminals and lost money.
76.There are a number of groups working on how vulnerable people within society should be treated by the fundraising and related industries. The Prime Minister’s Champion Group on Dementia Friendly Communities has produced guidance for financial services companies that examines the role of banks in monitoring the accounts of vulnerable people. In evidence to us, the Alzheimer’s Society suggest a cooling off period for donations from vulnerable people and an automatic alert to anyone holding a power of attorney for charity donations.
77.The new regulator should consult the Prime Minister’s Champion Group on Dementia Friendly Communities and any other representative groups for vulnerable people to examine how they can update the code. The new regulator should set out best practice in this area and make it clear that trustees are responsible for ensuring their charities apply the code.
78.None of the current regulators of fundraising has a public profile that matches regulators in other sectors. In 2011–12, MORI found that 90% of the public had not heard of the Fundraising Standards Board. In 2013, PASC recommended that the FRSB take steps to raise its profile. However, both Sir Stuart Etherington and Hospice UK told PACAC that the FRSB’s profile was still low in 2015.
79.The new regulator should take urgent steps to create a public profile, without which the new regulator will be unable to raise public trust and confidence in fundraising and the sector as a whole. Even a more proactive regulator will depend on the public bringing cases of malpractice to its attention.
80.The previous regulators admitted to us that they should have had a more proactive approach, seeking to find out if people were complying rather than waiting for complaints.Many charities agree. Since the Public Fundraising Regulatory Association began mystery shopping, they have seen a decline in violations of their code from occurring on 58% to 48% of their visits.
81.Many charities are not regulated by the Charity Commission. Some English and Welsh charities are not regulated by the Commission: these include universities, academies and museums. These charities have alternative principal regulators such as the Higher Education Funding Council which regulates universities, or the Department of Culture, Media and Sport which regulates museums.
82.Sir Stuart Etherington confirmed to us that these charities were not consulted in his review. He decided to exclude these charities as he wanted to produce a swift review in order to deal with the allegations by the Daily Mail and Mail on Sunday. The More Partnership gave evidence saying that “we are concerned that the voices of these important areas of charitable endeavour were entirely excluded from the invited consultation”.The Russell Group said that while they recognised the importance of the issue, they thought that some of the suggestions in the review would have a negative impact upon the University sector. For example, it is expected that the education institutions will approach their alumni, outside the restrictions to prevent cold-calling.
83.Sir Stuart Etherington is right to say that the new regulator should be more proactive in seeking out malpractice and believe approaches like that of the Public Fundraising Regulatory Association could help. A more proactive approach can help to rebuild public trust and confidence in the sector and also in ensuring that the sector does not have to depend on investigative journalists to reveal what is happening. It is reasonable that Sir Stuart Etherington’s review omits excepted charities such as Universities. However, the Government has decided they fall under the new regulator’s remit. The new regulator should urgently consult with these charities on its approach to regulating them.
84.Sir Stuart Etherington has suggested a new Fundraising Preference Service to supplement the Telephone Preference Service (TPS). The Information Commissioner said the new service would both duplicate some features of the already existing Telephone Preference Service and would confuse the public. We heard evidence that the Fundraising Preference Service will close some loopholes in the TPS, for example nobody will be able to claim that any opt in overrides the preference service.
85.The practicalities of the new Fundraising Preference Service are still to be worked out. The new regulator has set up a working group led by George Kidd, head of the Direct Marketing Commission, to examine the practicalities of introducing the Fundraising Preference Service. Charities have raised concerns about the practical implementation of the service. For example some charities have written to us to say that a binary system, where someone either opts in to all communication or opts out of all communication, “could lead to longstanding and valued links between individuals and the charities about which they care becoming collateral damage”.
86.We are not persuaded of the case for a new fundraising preference service. It would duplicate the function of the existing Telephone Preference Service (TPS), and add limitations to the activity of charities that do not exist for any other sector. If a new preference service is to be introduced, the new fundraising regulator should urgently seek to discuss with the Information Commissioner how the new telephone preference service can work alongside TPS, without creating conflict and confusion in the minds of the public.
87 Institute of Fundraising Annual Report and financial statements for the year ending 31st March 2015 p.3
90 Strategy Unit Report Private Action Public Benefit: A review of Charities and the wider not-for-profit sector p.65
91 HL Deb, 7 June 2005, c 787
92 Public Administration Select Committee, Third Report of Session 2013–14 The role of the Charity Commission and “public benefit”: Post-legislative scrutiny of the Charities Act 2006, HC 927, December 2013
93 Lord Hodgson of Astley Abbots Trusted and Independent: giving charity back to charities (July 2012) p.90, , December 2013 p.38
94 Lord Hodgson of Astley Abbots Trusted and Independent: giving charity back to charities (July 2012) p.92, Public Administration Select Committee, , December 2013 p.39
96 Q 373
98 Q 68
99 Q 56, Q 68
100 Q 68
101 Q 68
102 Q 57, Q 58, Q 68
103 Q 78
104 (FRSB Annex A)
105 (FRSB Annex B)
107 Q 177
108 (Institute of Fundraising and Public Fundraising Regulatory Association)
109 Sir Stuart Etherington, Lord Leigh of Hurley, Baroness Pitkeathley and Lord Wallace of Saltaire Regulating fundraising for the future: trust in charities, confidence in fundraising regulation (September 2015)p.50
110 Q 306 , (British Red Cross), (Oxfam), (Cancer Research UK), (Hospice UK), (Action for Children, Alzheimer’s Society, Barnardo’s, British Heart Foundation, the Guide Dogs for the Blind Association and the Royal British Legion)
111 Sir Stuart Etherington, Lord Leigh of Hurley, Baroness Pitkeathley and Lord Wallace of Saltaire Regulating fundraising for the future: trust in charities, confidence in fundraising regulation (September 2015) p.52
113 Ibid, p.53
115 Ibid, p.54
116 Ibid, p.9, 58
117 Ibid, p.53–4
118 Ibid p.8
119 Q 343
120 Q 417
121 Q 93
122 Q 337
123 Q 341
124 Cabinet Office Lord Grade announced as interim chair of the new fundraising regulator (November 2015)
125 Third Sector Sir Stuart Etherington calls charity bosses to a major fundraising summit (November 2015)
127 Q 340
128 Qq 125–139
129 Q 110 , Daily Mail (August 2015)
130 (Alzheimer’s Society)
131 IPSOS MORI Public Perceptions of charity: a report for the charities act 2006 review (May 2012) p.4
132 Public Administration Select Committee, Third Report of Session 2013–14, The role of the Charity Commission and 2public benefit”: post legislative scrutiny of the 2006 Charity Act, HC 76, (June 2013) p.39
133 Q 347 , (Hospice UK),
134 Q 78
135 (Save the Children), (RSPCA), (Guide Dogs for the Blind Association), (British Red Cross), (Oxfam), (Cancer Research UK)
136 (Public Fundraising Regulatory Association),
138 Q 345
139 (More Partnership)
140 (Russell Group)
141 Q 205
142 Q 164
143 Q 352
144 National Council of Voluntary Organisations Fundraising summit, what happened, what you need to know (December 2015)
145 (Action for Children, Alzheimer’s Society, Barnardo’s, British Heart Foundation, the Guide Dogs for the Blind Association and the Royal British Legion)
Prepared 21 January 2016