FTX — crypto exchange collapse gives rise to three key lessons in charity governance

Even those unfamiliar with cryptocurrencies are likely to have heard about the high-profile collapse of FTX — the aftershocks of which continue to be felt today. EVF — a charity backed by FTX — has since found itself the subject of a statutory inquiry from the Charity Commission.

Here, Partner Graeme Hughes explains what happened and identifies three important lessons in governance for other charities to be aware of to avoid similar attention.

Background to the statutory inquiry

In December 2022, the Charity Commission opened a statutory inquiry into the Effective Ventures Foundation UK (EVF) in response to the collapse of FTX Trading Ltd in November 2022.

FTX — a major cryptocurrency exchange — had been a significant funder of EVF. Its collapse raised concerns about the EVF’s financial stability and governance. 

EVF reported the issue to the Commission, citing a substantial amount of funding received from FTX, which led to questions about potential conflicts of interest due to the presence of FTX-affiliated trustees on EVF’s board. The inquiry aimed to investigate the charity’s financial controls, governance, management of conflicts of interest and overall adherence to regulatory requirements.

Fundamental governance issues

For those with a limited understanding of the crypto world, the subject matter is — on the face of it —technical and complex. However, a closer inspection of the issues at play demonstrates the importance of fundamental aspects of charity governance.

While the trustees of EVF took immediate steps to safeguard the charity’s assets following the collapse of FTX — seeking legal advice in the process — the Charity Commission found significant weaknesses in how EVF managed conflicts of interest. Although there was no evidence of intentional wrongdoing, the trustees hadn’t effectively identified or managed conflicts related to FTX.

As is often the case during a statutory inquiry — or indeed any form of engagement with the Commission — a second issue was uncovered in relation to a historical safeguarding concern. The issue had been addressed internally, though the Commission hadn’t been made aware of it via the Serious Incident Reporting regime. 

The Commission’s engagement with EVF appears to have been a broadly positive one, with the charity’s trustees being credited for their handling of the historical safeguarding issue and commitment to strengthening overall governance frameworks.

Three key lessons in governance

The findings of the statutory inquiry highlight the importance of fundamental, ‘good old-fashioned’ governance.

1. Conflict of interest policies

Charities must establish clear and robust conflict of interest policies.

These should include regular training for trustees and staff to ensure that everyone understands how to identify and manage conflicts effectively.

2. Governance structures

Strong governance structures and financial controls are vital for the sustainability and integrity of any charity.

Regularly reviewing and updating these controls can help to prevent governance lapses and ensure compliance with regulatory requirements.

3. Incident reporting

Charities should have clear procedures for identifying, reporting and addressing serious incidents to minimise risks and ensure accountability.

The timely reporting of serious incidents to the Charity Commission remains an important tool in establishing and maintaining a culture of transparency and protecting a charity’s reputation.

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