Charities’ banking challenges continue… but at least they’re finally being acknowledged

Introduction

The travails of charities’ challenges with banks are by now well-known to many people. If you haven’t been threatened by a bank to close your charity’s bank account, you likely know (of) a harassed treasurer desperately trying to meet impossible demands to provide information which does not exist. Increasingly, charities report having to meet unreasonable demands for information (some of which might not be relevant to charities), with the penalty for not complying with sometimes impossible demands within very tight timeframes often being summary closure of their accounts.

The Charity Commission of England & Wales, OSCR and the Charity Commission of Northern Ireland took the unprecedented step last year to publish an open letter to the banking industry, demanding better service from banks to support charities and the volunteers who often run them. Stewardship and other bodies like the Charity Finance Group and the Institute of Chartered Accountants in England & Wales have also been vocal about these issues. This is not an issue which just affects churches or Christian charities – voluntary organisations of all kinds have run into difficulties.

In this blog, we look at the issues, the banks’ response, and the Charity Commission’s own new guidance to charities.

A real danger

Clearly the most immediate danger is that a charity suddenly finds itself without a bank account, leaving them unable to pay staff, beneficiaries and provide charitable services. This can be incredibly disruptive and stressful!

But another real danger is that if banks disincentivise or come across as hostile to charities with even basic banking services, only people with professional backgrounds, or a lot of free time, are able to stick with it. That will exclude many others with different skills and networks from running impactful charities.

In many ways, charities’ experience with banks and their changing requirements feels like they start out running the 400m hurdles, which then halfway through arbitrarily changes to the 800m, and then the Pentathlon obstacle course. In the spirit of the Olympics, medals all round indeed... 

Response from the banking industry

In response, UK Finance (representing banks) has issued a guide to help charities navigate their relationship with banks. It’s a helpful starting point, providing checklists to ensure charities know what to provide to banks when asked for information as part of banks’ regular ‘know your customer’ reviews. It also provides a summary of certain charity banking options and refers charities to other sector bodies, such as the NCVO, when considering which structure they should set up as.

While certainly helpful information, most organisations experiencing challenges with bad service from banks already know which structure they are and know what banks are requesting of them. In our experience, the problem is rather that:

• banks ask charities for irrelevant information (such as the ‘beneficial owners’), or
• are given mere days' notice to collate information from a large number of voluntary trustees. If they can't give information that doesn't exist, or don't respond within impossible timeframes, their accounts are summarily closed, and banks claim, ‘the client didn't respond to our requests’. This guide will not address the root issues, which are that banks often do not understand charities or force processes suited to commercial organisations onto not-for-profits.

We have regularly seen cases where a bank asks for information to be provided 'within two weeks' (which can already be difficult if volunteers do not regularly see each other), but with a deadline that either is only days away, or has already passed – because there must have been a delay in sending out the letter in the first place.  Personally, I have been asked incredulously by a bank official how the charity makes money if it doesn’t sell anything. The concept of charitable gifts hadn’t occurred to that individual. Often, charities have sent information – even by recorded delivery – only for banks to claim they never received it.

Our verdict on the banks’ response

Having reviewed the guidance, it unfortunately doesn’t seem to address what are, in our experience, the core issues at play, namely banks’ lack of understanding of the charity sector and poor training of their staff. In places, it’s a copy-and-paste exercise, which collates information people are generally able to find online. The more fundamental challenges charities experience are that banks do not understand how charities are distinct from commercial organisations (insisting on who the ‘beneficial owners’ are, for example, when that is by definition not relevant), asking for information already in the public domain (the Charities Register is an example), or, for example, giving impossibly tight deadlines to collate information from volunteer trustees.

While the guide from UK Finance will be helpful in some ways, we believe it falls significantly short of the tangible actions that banks need to take to improve their processes and better serve charity customers. Banks benefit implicitly from government guarantees, and we have seen major banks bailed out by the taxpayer in the last couple of decades. Charities are often at the forefront of serving the public, which pays for the support banks receive from all of us. Banks need to recognise their public duty and do better to support the charitable and civic society in turn.

New Charity Commission guidance published

In short, then, we agree with Paul Latham (Director of Communications and Policy) from the Charity Commission for England and Wales who commented: "This isn’t good enough, and will only be solved by banks themselves taking tangible action to improve their processes and customer services and better serve their charity customers."[1] He is also correct to call out charities’ service to the people of the country, and that banks have good reason to serve them well in return. I'd go even further to say that banks benefit from significant implicit guarantees effectively funded by the taxpayers - so serving the not-for-profit sector isn't ‘charity’ (excuse the pun), but part of their public obligation.

The Charity Commission has published their own guidance to charities, acknowledging the issues they face. We want to give credit to the Commission for tackling this issue robustly!

Helpfully, this guidance:

• urges charities to make every effort to open a bank account as soon as possible
• reminds charities that some banks offer ‘community’ bank accounts, which are available to unregistered charities and those in the process of registering with the Charity Commission
• encourages charities to refer banks to the Commission’s public charity register if they’re asked to verify publicly available information
• signposts ways for charities to complain about poor service, including with official regulators such as the Financial Conduct Authority or Financial Ombudsman

No doubt charities will continue to experience challenges with banks for the foreseeable future… but hopefully these developments at least show that it is getting attention.

Selected links

https://www.ukfinance.org.uk/our-expertise/commercial-finance/voluntary-organisation-banking-guide

https://www.civilsociety.co.uk/news/website-launched-to-help-charities-open-and-manage-bank-accounts.html

https://www.gov.uk/guidance/charity-banking

These are not endorsements, but potentially helpful information on banking options:

The Just Money Movement has a guide on their analysis of ethical banking options: Banking - JustMoney Movement

Charity Excellence Framework has put together a further round-up of banking options and considerations: The Best Free Community Group And UK Charity Bank Accounts (charityexcellence.co.uk)

[1] https://www.civilsociety.co.uk/news/website-launched-to-help-charities-open-and-manage-bank-accounts.html