Brexit Party 'at high risk' of accepting illegal donations
The Brexit Party's online funding system left it open to "a high and on-going risk" of impermissible donations, the Electoral Commission says.
Sums of more than £500 must be registered and come from the UK under electoral law.
Concerns were raised during the European election campaign the party could allow multiple donations - potentially from outside the UK - to circumvent the rules.
The party said no rules were broken.
It also said it would "embrace" the recommendations on checking donors.
Under UK law, donations of £500 or above must be made by a "permissible donor" - someone who is listed on the electoral register or a company registered in the UK.
Amounts below that do not have to be declared, but some critics - among them ex-PM Gordon Brown - have said there is no way of telling whether those smaller amounts come from British or foreign sources, and therefore the system may be being abused.
The Brexit Party topped the polls at last month's European elections.
During the campaign, it said donations of £25 or less had accounted for 90% of its total funding. It raised more than £2m from small donors, thousands of whom paid £25 each to become registered supporters.
But Mr Brown suggested the party was getting round the declaration rules by accepting multiple "untraceable" donations directly online.
Political parties have 30 days to return donations if they are unsure of their origin.
To date, the Brexit Party has handed back one donation, of £1,000, as the party could not identify whether it was from a permissible source.
The Electoral Commission said it had made the party aware of its "legal responsibilities".
It was "legitimate" for any political party to adopt a fundraising strategy focused on raising small sums through online payment systems, including PayPal, it said.
But it said there was a legal duty on parties to check every payment they obtained online to ascertain the source of the donation and "not to accept any that they are not entitled to".
Parties should request "as much information as possible" to ensure all money was from a permissible source, it said.
In a statement, it said it had concluded that the "fundraising structure adopted by the party leaves it open to a high and ongoing risk of receiving and accepting impermissible donations".
The watchdog's director of regulation, Louise Edwards, said it had made "specific recommendations to the party that will support it to meet its legal responsibilities when it comes to receiving funds".
"Should it fail to meet those responsibilities, this will be considered in line with our enforcement policy," she added.
In response, the party said the watchdog's recommendations were "helpful" and it would embrace them "as soon as practicable and possible".
"They haven't found any examples of infringement of Electoral Commission rules," a spokesman said. "We trust that the Electoral Commission have been applying the same oversight and rigour to the other political parties and their fundraising."
During the campaign, the party insisted all of its donations were above board and it had made clear on its website that people should not attempt to give money unless they were on the electoral roll or eligible to vote.
Both the Labour and Conservative parties also have the option to donate via PayPal on their websites.
The Electoral Commission will, in August, publish details of larger donations, of £7,500 and over, given to The Brexit Party and other parties during the election campaign.