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How charities can face complex regulatory challenges

Author: ICAEW Insights

Published: 07 Feb 2024

ICAEW’s Charity Committee Chair calls for more balanced and proportionate regulation as charities brace for a demanding year ahead.

Financial sustainability and people-related risks are among the biggest challenges that many charities are facing as 2024 gets under way, says the Chair of the ICAEW Charity Committee.

Daniel Chan, a director at PwC who leads on charity audits for the firm, says that charities have seen the combination of increased costs, pressure on income due to greater fundraising challenges and increased demand on services, creating a ‘triple whammy’ effect. But against a backdrop of stretched resources, the need for balanced and proportionate regulation has never been greater.

Charity staff and volunteers have demonstrated immense resilience over the past few years, particularly during the pandemic and in responding to the cost-of-living crisis. In this context, it is important for the value of regulation to be clear, Chan adds. “People want to do the right thing, but sometimes it can be hard to keep up, particularly if the rules change.”

Ensuring that the right culture and support structures are in place is key, Chan says. “There is a psychological safety dimension to regulation, so striking a balance between supporting people to get things right rather than imposing sanctions when things go wrong is also important.”

The UK charity sector is hugely diverse in terms of activity and size of organisations. “When we think about charities, we often think about the largest, most high-profile charities, but the vast majority are very small,” says Chan. The regulatory landscape can therefore be challenging for some charities, which must adhere to regulations from one or more of three UK regulators: the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, and the Charity Commission for Northern Ireland. 

Meanwhile, charities that fundraise are also subject to the rules laid down by the Fundraising Regulator, those running lotteries are subject to Gambling Commission regulation and those involved in healthcare are regulated by the Care Quality Commission.

Charity regulators have tried to streamline, but there is an element of duplication because of different layers of regulation and regulators, Chan explains. “Many charities are also companies and so are subject to the Companies Act 2006 that all other companies are subject to. 

“It’s the multifaceted nature and interplay of that landscape that charities need to navigate and they need the appropriate resource, knowledge and expertise to do that,” he says. Charities are also always asking themselves how to maximise the use of their limited resources for their charitable purpose.

Chan is also mindful that regulations may have a disproportionate impact on smaller charities, including across services used by the sector, such as banking, which can mean additional administration for charity trustees and staff. Charity banking access and customer service is a matter that the charity regulators have collectively written about to the chief executives of the UK’s main high street banks.

“So, how does one make regulation more balanced and proportionate?” Chan asks. Ultimately, the responsibility for complying with the relevant regulations lies with charity trustees, who are generally volunteers giving up their time, but equally there is public interest in what charities do. “We need to recognise that charities hold a special place in our society and our communities.”

This certainly isn’t about having no regulation, Chan says, but it is about better regulation that adds value. “Dialogue and communication between regulators and those they regulate is very important,” he explains. The Charity Commission for England and Wales, for example, has made efforts to make its guidance more accessible, such as through simple five-minute guides for charity trustees and forums to explain its role and the vital part that charity regulation can play.

Wider support is also available, adds Chan. “We have a wealth of resources within ICAEW and our charity community, including trustee training. We’re keen to ensure that everyone has access to it, so it is free and open to all.”

Better Regulation project

The Better Regulation project aims to help ICAEW and its members understand how the UK’s regulatory regime might be improved and to use our insights to call for change.

Charity Community

If you are a finance professional with involvement in the charity and voluntary sector, why not join ICAEW's Charity Community to stay up to date with the latest developments in charity finance, taxation and governance.

Charity polaroid

Member views on UK regulation

Briefing on the UK's regulatory regime

This briefing looks at what is meant by regulation, what makes good regulation and key components of the UK’s regulatory architecture.

Read briefing
What is the Better Regulation project?

This project aims to understand how the UK’s regulatory regime might be improved and to call for change where needed.

Read introduction
better regulation
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