Market Abuse – Is it Time to Regulate the International Development Sector?

On the 28th March Tesco was ordered to pay £129 million / $160 million fine for “market abuse” as a result of overstating its profits in 2014. The final notice from the Financial Conduct Authority states:

As a result of the market abuse, a false market was created in the Relevant Securities. Purchasers of the Relevant Securities paid a higher price than they would have paid had there not been a false market and those who purchased more than they sold in the period of the false market suffered loss as a result

In simple terms, Tescos made it look like they were more profitable than they actually were, their share price increased, investors bought shares only to find out 6 months later that Tesco wasn’t that profitable, at which point the share price dropped.

So what does that have to do with International Development?

In 2015 the UK public donated about £10 billion to charity of which 11% (£1 billion) to Overseas aid and disaster relief. Approximately $20 billion was given to Overseas aid by individuals in 2014 across the US, UK and Europe. Not taking into account how much is given through institutions such as DFID, USAID, European Commission, it is still a huge market.

Consider some of the aid agencies recent annual reports:

Save the Children – Annual Review 2015 . “In 2015, we reached over 62 million children directly through our and our partners’ work.”

Care International UK – Annual Report 2015-2016.  “In 2015-16, CARE helped more than 80 million people through 1,044 poverty-fighting development and humanitarian aid projects and initiatives.”

Unicef – website.  “In 2016, 13.6 million people got access to safe water as part of a Unicef emergency response.”

My thinking goes, if at the moment INGOs are funded on the basis of their work, which is currently measured in terms of output; then by that rationale the more output they provide, the “better” they are. If they are “better” than another INGO then it is likely more people would donate to one over the other. But what happens if they are not actually “better”? Or later on realise that a miscalculation means their 50 million people was in fact 35 million? What happens then?

People often cite the Charity Commission as the regulatory body assuming this means making sure a charity is doing what it says it does. But actually the Charity Commission doesn’t look at whether something has happened or not. They take action if there is evidence of malpractice or misconduct, but I would suppose someone would have to tell them first. They make sure charities meet their legal requirements, including providing information on their activities each year, but that is simply reviewing a charity’s annual report.

“FCA Regulation MAR 1.8.4 G 03/07/2016 – If a normal and reasonable person would know or ought to have known in all the circumstances that the information was false or misleading, that indicates that the person disseminating the information knew or ought to have known that it was false or misleading”

There is in fact no oversight on whether the numbers each agency promotes as it’s success are real. For example, in Haiti, during the annual reporting of “people reached” for the agency I worked for, I realised that the number of beneficiaries I had reported as having reached, were also in part being reported by another team. I was implementing one programme in a village, and they were implementing another programme in the same village, but what we reported were the same beneficiaries. We were effectively double counting. Programmtically there was no change for us, but externally, the agency was claiming we had reached twice as many people as we actually had. If we had done it in Haiti, how many times was this multiplied across all countries? Is the 50 million in fact, 25 million, or maybe even 15 million? If one agency is doing it, how many others?

If the quality of aid cannot be measured in terms of outcomes or even by end user feedback and, at present anyway, agencies insist on measuring it in terms of outputs, then there needs to be better oversight to monitor those outputs, as well as repercussions in place if mispractice occurs. In the same way that companies are not allowed to overstate their profits to seem healthier than they are, INGOs should no longer be allowed to overstate their successes without real evidence. They should not be allowed to create a “false market” that leads people to believe they are doing more than they actually are.

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