Balancing innovation with compliance: how emerging technologies are transforming philanthropy

By Janine Cubbon, Director – Private Wealth, Suntera Global

In today’s rapidly evolving landscape, developments in artificial intelligence (AI) and automated technologies can be revolutionary for trustees, presenting opportunities to access new investment markets and pursing diverse philanthropic ambitions.

Those opportunities are considerable – allowing for greater alignment with strategy, improving operational performance, and facilitating real-time valuations.  

The real challenge for trustees, however, is balancing innovation with compliance. Technology developments are fast-paced – firms are increasingly exploring and integrating AI-enhanced tools within their existing platforms to improve efficiency and decision-making.

Against that backdrop, keeping up with the pace of change and maintaining momentum without being overwhelmed or compromising standards are key to any strategy, philanthropic or otherwise.  

Transparency and Accountability

When it comes to philanthropy, the stakes are increasingly high and offshore trustees face growing pressure to demonstrate transparency, impact and accountability in the management of philanthropic funds. 

Technologies including AI can significantly enhance how trustees manage and disburse funds for philanthropic purposes, in a number of ways:

• Transparency and Traceability: Adopting well-researched technologies offers trustees the opportunity to move from acting as fund stewards to becoming innovative leaders in global giving. Blockchain technology, for instance, allows secure, immutable ledgers of transactions, providing trustees with the ability to record each disbursement, ensuring a clear audit trail.
  
  Trustees can also benefit from the use of smart contracts when making distributions, ensuring that funds are only released when predefined conditions are met. For example, a payment could only be released to a charity under the terms of a smart contract when specific milestones have been met. Trustees can then evidence that funds have been used as intended to stakeholders, including beneficiaries and regulators, in turn enhancing trust and confidence between trustee and beneficiaries. 
  
  On the other hand, while transparency is crucial for regulatory compliance, there is also a need to respect the discretion and privacy of donors and beneficiaries. Organisations should strive to find a balance that embraces the potential of technology whilst also satisfying regulatory demands without undermining the emotive and personal aspects of philanthropy. 
  
  
• Due Diligence and Impact Assessment: AI has considerable potential application when it comes to due diligence, empowering trustees to perform faster, smarter due diligence exercises. 
  
  Its application at on-boarding of new client relationships is increasingly commonplace, for example, allowing what could be a time-consuming and sometimes overwhelming exercise to run efficiently and in line with regulation, mitigating risks for trustees whilst enhancing the engagement experience for clients.
  
  AI tools can also be used by trustees involved in philanthropic ventures, allowing them to analyse mass quantities of unorganised and organised data on charities, across multiple jurisdictions and sectors, and considering various factors such as social and environmental impact, trustworthiness, and verification of legitimacy.  
  
  

Caution

These are just a few examples of how AI and automation can provide trustees with considerable opportunities in the philanthropic space - but caution is key. As always, there are challenges and issues that any trustee must consider, and balancing the benefits of innovation with compliance obligations is vital.

Perhaps the biggest challenge revolves around regulatory uncertainty, with many jurisdictions still lacking clear regulation or frameworks. In such circumstances, trustees can unknowingly breach tax or compliance laws, especially in a cross-border context. Using technologies is not an excuse for such breaches.

In addition, advances in technological innovation have not been universal, and some regions lack access to a required infrastructure or may be at enhanced risk of attack or fraud.  

Further, the risk of cybersecurity threat continues to increase as processes and procedures become more and more digital in nature, with the use of digital platforms acting as a target for hackers and cyber criminals. Particularly where philanthropic activity can involve sensitive or personal information, breaches of data can be catastrophic.   

Finally, implementing emerging technologies can be expensive and require specialist expertise. In particular in the philanthropy sector, where efficiencies are key, this can often be a major barrier when it comes to digital adoption.

Practical Steps

There are a number of practical steps trustees can take, however, to address these challenges, to enable a balanced approach towards the adoption of technology in the philanthropic sector and robust standards of compliance:

• Governance Frameworks: Establishing strong governance frameworks and/or parameters is essential. These frameworks help ensure that technology can be targeted to support specific philanthropic activities or goals, aligned with both regulatory requirements.
• Stakeholder Education: Educating both trustees and families about the benefits and implications of adopting new technologies can be very helpful. This includes addressing concerns about increased scrutiny and ensuring all parties are comfortable with the tools being used.
• Focusing on Practical Risks: Rather than only discussing the seemingly limitless potential of technology, focusing on practical issues such as regulatory uncertainty, cybersecurity, and costs can be helpful. Addressing these risks head-on can make the adoption of technology more manageable and less overwhelming.
• Continuous Dialogue: Maintaining open communication with all stakeholders, including regulators, clients, and families, can also ensure that evolving expectations are met and that a trustee, and its underlying clients, can adapt to new regulatory or technological developments.

All this will require an element of agility and adaptability, and an understanding that efficiencies may not always be seen immediately. However, the opportunities to support philanthropic strategies through the adoption of AI, blockchain and automated technologies are real and powerful and should not be ignored.

The philanthropic sector has a real opportunity to balance regulatory and compliance demands by using technology to enhance transparency and impact, building robust governance, educating stakeholders, and maintaining a focus on both compliance and the core mission of social good.