Crowdfunding: risks, pros and cons with online donations
There is currently no regulation of crowdfunding platforms in the UK.
As crowdfunding campaigns remain a popular way of fundraising online in Scotland, questions have been raised about the transparency of how donations are distributed.
Gerald Oppenheim, the Chief Executive of the Fundraising Regulator, told Scotland Tonight people who want to donate should use platforms at their own risk.
Currently, there are no legal regulations for the majority of sites.
He said: "If you're giving money to an individual, you need to be very, very sure about what you're doing".
Here is an edited transcript of his interview.
John MacKay: Gerald, crowdfunding seems to be everywhere now. Why has it become so popular?
Gerald Oppenheim: Because it's a very straightforward way for someone to raise money for a cause that they care about, whether that's a charity or something that's personal to them and their family.
John: It uses platforms, you can't just go up anywhere and set up a fundraising site?
Gerald: That's right. You have to use one of the established platforms. There are quite a number around, probably three or four that are quite well-known, like Just Giving, Go Fund Me, Virgin Money Giving. There are a number of others as well. You can go onto their site and say what you want to do, open up a page.
John: What is the regulation of these platforms?
Gerald: Well, most of the platforms are commercial operations. There are one or two in England that are registered charities as well, but they are the exceptions, not the rule. There was no real regulation of them. Back in 2017, when there were those terrible terror attacks in London and Manchester and then the Grenfell Tower fire, an awful lot of people wanted to donate to help the people affected and there was a real explosion in the number of fundraising pages that were opened up. There was concern there was no regulation and at the fundraising regulator, we were asked to step in to talk to the platforms about that.
John: What regulations guide or control what these platforms are providing?
Gerald: We're responsible for something called the code of fundraising practice, which has been around for about 20 years so. It sets out the rules about fundraising, whether you're someone actually raising money or like an online platform, you're the vehicle for the fundraising to take place. The rules are there, the dos and don'ts. Some of the rules are backed by charity law or other elements of the law, so it's both good practice and a guide to what you must and mustn't do. The platforms weren't covered by this until June last year, when we introduced some new provisions to the code, which brought them in and sought to regulate them in the same way that other bodies are. So you've spoken about why crowd funding is popular and what it can achieve, but there must be cons to it as well, which is why you need regulation.
John: What are the risks?
Gerald:The risk is that somebody goes on to a crowdfunding site, an online giving page, without a clear idea of quite what they want to do. They know they want to raise some money, they may even know how much they want to raise, but they also need to be clear about how they are going to get the money from the page to the place that they want it to go. That can be a real problem. Sometimes people don't realise that there may be fees and charges that the platform may take, if only to cover the cost of credit or debit card donations.
John: Is that transparent enough?
Gerald: It wasn't transparent, but the provisions we put into the code now require organisations running online platforms to be transparent, so that if you're a member of the public wanting to raise money, you can find all the information you want about fees, charges, how much you can raise, what happens to the money, all of that in one place, easily found on their website.
John: What if the target for a particular crowdfunding campaign is exceeded? What happens to that extra money?
Gerald: Normally speaking, when you open up a page, you'll say what your target is and that will be the target. Now, you might raise a little more than that. Say you were raising £500 and actually you raised about £510, that wouldn't be a terrible issue. But if you raise an awful lot more, the platform would really need to ask questions about what was going to happen to that money. They might indeed close the page before it got out of control as it were. So the platforms do some sort of diligence of people setting up pages.
John: If you want to contribute, if you want to give money to a crowdfunding site, what should you look at out for?
Gerald: If you want to give money, make sure that you understand what you are giving to. If the cause is a named charity, you can check that out very easily by looking at the Office of the Scottish Charity Regulator's website. You can look at our website to see what they are about. If you're giving money to an individual, you need to be very, very sure about what you're doing. There may be a limit to what you can check up about them, but it's at your risk at that point and you need to be aware of that.