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Regulators urge banks to improve ‘inadequate’ services for charities

15 Nov 2023 News

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UK charity regulators have called on banks to improve their “substandard” services for charities, some of which are having their accounts closed or suspended suddenly and are experiencing “poor customer service and administrative delays”.

Today, chief executives of the Charity Commission, Office of the Scottish Charity Regulator and Charity Commission for Northern Ireland wrote to the UK’s main high street banks to demand “urgent action to help hard-pressed charities”. 

They said that the longstanding banking issues faced by the sector mean that many charities have been experiencing disruption to their operations and, in some cases, have been unable to pay their staff. 

The Charity Commission previously said that there was a “growing sense of worry about banking services” among charities, citing difficulties in accessing accounts and finding new accounts and having their accounts suddenly closed or frozen. 

‘These issues are of concern to us and should be of concern to banks’

In the letter, the regulators said that while charities help beneficiaries deal with the cost-of-living crisis, they themselves face financial difficulties and stresses that are “heightened by avoidable frustrations at the availability of bank accounts and substandard service from banks”.

They said they are aware of charities having their accounts closed or suspended for long periods of time, facing a reduction in bespoke banking services, experiencing poor customer service and administrative delays and finding that online banking is not designed to match the way they operate.

“Adequate banking provisions and control over cashflow are critical to robust financial governance procedures, and that underpins the sustainability of the sector,” they wrote. 

“Charities need banking providers to support them in ensuring funds are appropriately and transparently managed.

“If inadequate provision drives charities to rely on unsafe practices – such as trustees using their own bank accounts, or keeping large cash reserves unsecured – public trust in charities may become eroded. Those impacted most tend to be smaller local organisations. These issues are of concern to us as charity regulators and should be of concern to banks.”

Processes must be ‘more straightforward’ for charities 

The regulators said that some work is underway to address banking issues, but added that there is “much more that banks could be doing to make this easier for charities”.

They urged banks to improve the process for setting up a charity bank account by making it “more straightforward” and to ensure banking employees are trained adequately so that they understand how charities operate and what their needs are.   

“Training materials would ensure bank staff are aware of the different charity structures and how they are governed, so they request correct documentation and prevent avoidable delay driven by misunderstanding within banks,” they said. 

“The action needed can only happen with support and leadership from UK banks. Working with charities is key to acting as a responsible business within our society, and the best way that banks can do so is by streamlining services to help charities operate in a way that does not create serious governance issues for them.”

At the Charity Commission’s annual public meeting in Liverpool today, chief executive officer Helen Stephenson said that the letter “makes clear that we consider the service charities experience is unacceptable.

“The scale of the response from banks needs to improve, now, and at pace.” 

Muslim Charities Forum: ‘This issue has not been addressed sufficiently until now’

Fadi Itani, chief executive of the Muslim Charities Forum (MCF), said: “Muslim-led charities in particular have been disproportionately affected with sudden bank account closures under banks' de-risking processes.  

“Banks opt to de-bank charities in order to appease their risk appetite, rather than seeking to understand their clients’ operations and the relevant safeguarding policies charities have in place.  

“Often this process is not communicated nor explained to charities who have fulfilled all legal and financial obligations and who can be left without access to vital banking facilities. These place public trust and support in jeopardy and most importantly, disrupt charities' operations, and can stop vital aid reaching people in desperate need. 

“We welcome the statement from the Charity Commission, as many charities have been struggling for years and are concerned that this issue has not been addressed sufficiently until now. 

“As MCF, we call for a complete review of banking practices, including full transparency on how internal decisions are made, and how they use third-party data to inform their decision-making.

“We believe this is an area that the Treasury and FCA can lead on to introduce better governance and regulations to deter banks from de-banking charities without consequences, offering stronger protection for charities from such practices.”

Charity Finance Group: Progress ‘slower than we would like’

Clare Mills, director of policy and communications at the Charity Finance Group (CFG) said: “CFG welcomes this action by the Charity Commission.

“We have been working closely with the regulator and other infrastructure bodies since early 2022 to improve access to banking for charities, voluntary organisations, faith and community groups, all of which need to have a straightforward and secure way to manage and protect money.

“Although there has been some progress behind the scenes, with positive input from some of the banks and UK Finance, this has been slower than we would like. 

“There are two aspects of risk in this situation. There’s the risk to individual charities and social purpose organisations which are struggling with access to banking services, which can include having accounts closed suddenly. This can mean charities being unable to operate and support their beneficiaries, and creates a significant amount of work to unpick what's happened and return to ‘business as usual’.

“If charities are unable to operate effectively and maintain good governance, then there is also the wider risk to the sector as a whole.

“This cumulative impact of access challenges is equally concerning. We don’t want to see the high levels of trust in the sector undermined by the loss of access to banking services.”

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