46: Charities and cryptocurrencies – new Charity Commission blog and update on other developments on cryptoassets
On 12 July 2022, the Charity Commission published a blog, ‘Cryptocurrencies: what are they, and should charities use them?’. We consider the Commission’s initial guidance, as well as other guidance and information for charities and some updates for charities to consider in this developing area.
The Charity Commission’s blog represents a first toe in the water from the Commission – it notes that it is continuing to look into this area and ‘speaking to experts and charities about how cryptoassets might change how charities work – or not’. The Commission says that it will ‘provide further guidance if we think that is appropriate’, so it is not clear if or when more Commission guidance may follow.
For now, the Commission considers that ‘trustees should think very carefully before investing in cryptocurrency, evaluating the benefits and risks as they would do with any important decision about their charity. This includes taking appropriate professional advice. Use our guidance on the core trustee duties, on making effective decisions, and our investment guidance as your guides’. The blog also emphasises the importance of ‘know your donor, which can be tricky in the context of cryptoassets, as the blockchain relies on – indeed in some ways is designed to guarantee – anonymity and secrecy’.
The Commission’s blog picks up on some of the themes already identified by the Fundraising Regulator in its own blog published on 3 May this year. In that blog, the Fundraising Regulator considered the possibilities offered to charities by cryptocurrencies (and also NFTs – non-fungible tokens – which, in essence, represent ownership of unique digital items eg art, videos, trading cards). Whilst noting the opportunities on offer – including the potential to tap into new donor pools – the Fundraising Regulator made a point of highlighting issues around transparency, volatility and environmental impact.
What is clear from both these regulatory offerings is that cryptocurrencies (and indeed the wider cryptoasset market, including NFTs) remain an emerging area where policy (and law) is yet to be defined.
Charities should continue to approach cryptocurrency and potential uses for the associated technology in the same terms as any other activity, with the board taking reasonable decisions in line with their trustee duties. Indeed, the Commission’s blog concludes that:
‘For many, these standard considerations will lead them to err on the side of caution until more is known about the market, and there is more regulation in the UK. Recent plunges in crypto currency values emphasise that such caution is prudent.
Trustees who do decide to dip their toes in the crypto water should document their decision-making carefully. Remember that if problems arise, the Commission might need to get involved, and we’ll expect to see evidence that you fulfilled your legal duties and responsibilities and did not put your charity’s assets – including its reputation – at undue risk.’
As one might expect, the general tone from the Commission is one of caution likely borne out of concern that some organisations may rush in without sufficient knowledge and get their fingers burnt at loss to the charity.
In other recent developments:
- HMRC published a report on 5 July 2022 entitled Individuals holding cryptoassets: uptake and understanding. The Report, based on research commissioned by HMRC to explore the cryptoasset market in the UK, confirms, amongst other things, the growing popularity of cryptoassets and includes some interesting data on the key characteristics of cryptoasset owners in the UK. According to the Report, 10% of UK adults said they hold or have held a crypto asset. Unsurprisingly the research shows that cryptoasset owners tend to be younger than the general population; 76% were under the age of 45 (compared with 45% of the general population) and the majority of owners (69%) were male. These statistics may be of interest to charities and fundraisers looking to engage with donors who may be more difficult to reach using more traditional methods;
- on 13 July 2022, the Parliamentary Treasury Committee launched an inquiry into cryptoassets, together with a call for evidence. The inquiry seeks to examine the potential risks and opportunities associated with the use of cryptoassets, their impact on social inclusivity and the possible need for regulatory change in the future. The associated call for evidence is open until 12 September and invites written submissions on a number of issues – including the extent to which cryptoassets when used as digital currencies (like ‘Stablecoins’, which are designed to have a relatively stable price through, for example, being pegged to a traditional currency or an exchange-traded commodity such as gold) are likely to replace traditional currencies. Recognising the volatility associated with this sector, the Chair of the Treasury Committee, Rt. Hon. Mel Stride MP, comments that: ‘…In recent months, the value of most crypto-assets has fallen dramatically. As a Committee, we will be investigating the opportunities and risks that crypto presents, where additional regulation may be required, and the lessons the Government can learn from other countries….’
The area of cryptocurrencies and cryptoassets undoubtedly offers some tantalising opportunities for charities – whether:
- on the fundraising side, with new donors wishing to donate in crypto;
- in investment, with news of crypto leaping in value (and crashing); or
- operationally, as a means to get money across borders in areas where normal banking is not a realistic option.
However, it remains a very technical and jargon-heavy area which is (as yet) largely unregulated. It holds many traps for the unwary and ill-informed, as well as reputational risk (for example, in relation to environmental and money laundering concerns).
For further information please refer to our recent blog on Crypto philanthropy and joint article with RSM entitled Cryptocurrency-what is it and why do we care?. You may also be interested to read our blog summarising the key measures announced by the government in April of this year to help make the UK a global crypto hub.
For further information please contact Sarah Williams.