Share

Banking reforms put charities at further risk, warn sector leaders

Jane Tully, head of policy, CFG
News

Banking reforms put charities at further risk, warn sector leaders

Finance | Niki May Young | 15 Oct 2012

The draft banking reform Bill, which has dismissed the need to protect charities' deposits in the event of banking collapses, has been slammed by charity sector leaders, who warn the proposals could put charities at further risk of going under.

The Independent Commission on Banking, which published the Bill on Friday, said that after considering the need to create a preferred protection for deposits from organisations such as charities and local authorities, "the government deemed that there was not a sufficiently strong case for preferring any of these debts alongside insured deposits", and therefore only insured deposits will be protected. 

Sir Stephen Bubb, chief executive of Acevo warned that "charities risk losing everything if their bank goes under, putting services for the vulnerable at risk".

He continued: "Over recent years we have seen the devastating impacts on beneficiaries and communities of charity closures caused by the financial crisis. The government urgently needs to think again and give charities preferred creditor status, at no cost to the taxpayer, before its inaction sends yet more charities out of business."

Charities' case is not exceptional

In its Bill, the Committee defends its decision not to give charities preferred creditor status: "There are considerable drawbacks in extending the scope of preference to other groups of creditors, such as the dilution of the benefits of preference to the Financial Services Compensation Scheme (FSCS), and the effect of increasing the exposure of other non-preferred groups to losses in the event the bank fails," it said.

"The wider the extension of preference (for example to multiple groups), the greater the impact of these drawbacks will be. The government has carefully considered the arguments made in favour of preferring other groups of depositors, but takes the view that no group or sector stands out as an exceptional case." 

It continues that: "Organisations that channel public or donor funds to deliver societal benefits include, among others, schools, universities, charities, police authorities, and local authorities, and the larger ones will be more likely to have the resources to make multimillion pound  investments on the basis of maximising return for a given level of risk (rather than purely holding funds prior to onward transfer). Such organisations are likely to be at least as well positioned to monitor and manage risk as many other groups of senior unsecured creditors who would stand to be subordinated if preference were extended."

Charity Finance Group (CFG) welcomed an additional degree of protection offered by the Bill in the form of an extension of the FSCS to cover all individuals and most organisations up to the coverage limit of £85,000, but Jane Tully, head of policy at CFG said that for large charities this would be "a drop in the ocean". 

Speaking of the Bill overall, Tully said the government has "missed an opportunity" to provide greater protection to charities. She advised that the failure to do so could mean that charities are could be forced to reduce income by depositing in banks with lower returns, or increase spending by paying advice or training in managing risk.

"Charities will therefore need to be aware of the changes, and ensure that they have the skills and capacity to effectively manage this increased banking risk," said Tully.

CFG had outlined these risks in a joint response with NCVO, Acevo and CAF to the White Paper consultation, which launched in June. 

Next steps

The Bill is now to be scrutinised by the Commission on Banking Standards prior to its formal introduction in Parliament. Government has advised of its commitment to see the Bill enacted in legislation within its term of leadership (by 2015) and come into force by 2019.

 

Comments

[Cancel] | Reply to:

Close »

Community Standards

The civilsociety.co.uk community and comments board is intended as a platform for informed and civilised debate.

We hope to encourage a broad range of views, however, there are standards that we expect commentators to uphold. We reserve the right to delete or amend any comments that do not adhere to these standards.

We welcome:

  • Robust but respectful debate
  • Strongly held opinions
  • Intelligent relevant discussion
  • The sharing of relevant experiences
  • New participants

We will not publish:

  • Rude, threatening, offensive, obscene or abusive language, or links to such material
  • Links to commercial organisations or spam postings. The comments board is not an advertising platform
  • The posting of contact details for yourself or others
  • Comments intended for malicious purpose or mindless abuse
  • Comments purporting to be from another person or organisation under false pretences
  • Gratuitous criticism, commentary or self-promotion
  • Any material which breaches copyright or privacy laws, or could be considered libellous
  • The use of the comments board for the pursuit or extension of personal disputes

Be aware:

  • Views expressed on the comments board are left at users’ discretion and are in no way views held or supported by Civil Society Media
  • Comments left by others may not be accurate, do not rely on them as fact
  • You may be misunderstood - sarcasm and humour can easily be taken out of context, try to be clear

Please:

  • Enjoy the opportunity to express your opinion and respect the right of others to express theirs
  • Confine your remarks to issues rather than personalities

Together we can keep our community a polite, respectful and intelligent platform for discussion.

Tags

Free eNews

Camelot CEO says deregulation of society lotteries may not increase good cause money

18 Dec 2014

The chief executive of Camelot has said that reducing the regulation around society lotteries may not...

Ukip supporters trust charities less than other voters do, NPC study finds

18 Dec 2014

A survey by Ipsos Mori for NPC about how charities are perceived by people who vote for various political...

Tobin Aldrich leaves Sightsavers to set up consultancy

17 Dec 2014

Former director of global fundraising for Sightsavers, Tobin Aldrich, has announced that he has left the...

PDSA plans to change objects to offer paid for services

19 Dec 2014

The Charity Commission has sided with the People’s Dispensary for Sick Animals on a decision that would...

Charity Commission exercises inquiry powers four times as often as previous year, report shows

19 Dec 2014

The Charity Commission investigated almost 2,000 charities in the year to March 2014 and used statutory...

DWP promises measures to improve charities’ experience of the Work Programme

18 Dec 2014

The Department for Work and Pensions has agreed to introduce measures expected to improve the Work Programme...

CRUK crowdfunding effort flops

15 Dec 2014

Cancer Research UK’s three new crowdfunding campaigns did not manage to raise even 10 per cent of the...

Volunteering platform Do-it relaunches

12 Dec 2014

Online volunteering platform Do-it has been relaunched today by its new owner, the Do-it Trust, with more...

‘The challenge is getting people to use IT systems’

28 Nov 2014

Whatever type of customer-relationship management system charities use, the biggest challenge is convincing...

Join the discussion

 Twitter button

@CSFinance