Charities are still waiting to hear whether deposits frozen in the Icelandic banking crisis will be returned to them.

The collapse last week of Iceland’s major banks has left charities facing collective losses of over £100m. However, it is hoped that ongoing negotiations between the UK and Icelandic governments, as well as an injection of £100m by the UK government to the Icelandic banking system will help resolve the situation.

A Treasury statement last week said that arrangements have been put in place to ensure that all retail depositors in the Icelandic banks of Landsbanki, Heritable and Kaupthing Singer & Friedlander will receive their money in full.

Retail deposits 'safe'

Charity Commission guidance on the crisis says that retail depositors include those charities who are a body corporate (including companies, industrial and provident societies, Royal Charter bodies, and statutory corporations) which have two or more of the following: £6.5m or less turnover; £3.26m or less balance sheet total; or 50 or less employees. It also includes unincorporated associations with assets of £1.4m or less.

The Commission says that charities that do not fall into this definition appear to be classified as wholesale depositors, and it will update its guidance as further information becomes available about the position of these depositors.

One of the three Icelandic banks to go bust was Kaupthing, the Icelandic parent of Kaupthing Singer & Friedlander (KSF), which is currently in administration in the UK. KSF has consistently offered one of the most competitive fixed-term deposit rates for charities over the last few years.

While there is no definitive figure of the amount of losses charities have potentially been exposed to, the BBC estimates it could be £120m. Cats Protection alone has admitted it had £11.2m deposited with KSF. Additionally, charities which provide services for local authorities fear they will not be paid if councils lose money in the crisis.

Any charities who have invested in these Icelandic banks are encouraged to let the Charity Commission know by email so that the aggregate investment by charities in these banks can be assessed.

Seeking full compensation

Charity umbrella bodies held an emergency meeting with the Treasury last Thursday to seek full compensation for charities affected. In a joint statement following an emergency meeting at HM Treasury, CAF, NCVO, acevo, and CFDG said: “After a positive meeting this afternoon, the government promised to make the greatest effort to recover those funds at risk in the Icelandic bank crisis.

“We now urge all charities that have been affected to come forward immediately so that we can assess the extent of the problem and work with the Foreign Office, the Ministry of Justice and the Treasury to ensure charities’ vital resources are protected. We will continue to press the Treasury for absolute assurances that charities will not lose out. We will continue to campaign for charities that have had exposure to Icelandic banks for full coverage of the losses.”

Government ‘determined to support sector’

New charities minister, Kevin Brennan responded by saying that in the light of recent global economic events, the government was more determined than ever to support the third sector through the upcoming months and years. “We are working with the Treasury to do what we can to support those organisations with investments in Icelandic banks, and ensure they are in the strongest possible position to protect their investments.”

Brennan also said: “We recognise that charities, voluntary groups and social enterprises will face tough challenges, particularly in raising donations, while demand for their services is likely to go up.

“The newly founded National Economic Council will consider the impact of the current financial crisis on the whole economy including the third sector, whose interests will be represented by Cabinet Office ministers and officials at the highest level. We are working closely with sector leaders, representing small and large organisations, and I will sit alongside Stuart Etherington to co-chair an upcoming NCVO sector-wide summit to tackle upcoming issues.”

CFDG concerns over Compensation Scheme

Meanwhile, CFDG chief executive Keith Hickey has written to the Chancellor expressing concerns about the ability of charities to qualify for compensation under the Financial Services Compensation Scheme (FSCS). “One of our members has lost £400,000 in a fixed-term deposit account in one of the Icelandic banks. When they talked to the FSCS they were informed that as a limited company, that didn’t meet the small companies rules, they would not be covered by the compensation scheme.

“Another member has told us of a similar situation involving the loss of £4m and I am sure that there will be many others. In the current economic climate it is the most vulnerable people that will face the greatest difficulties. While it is the charity that suffers in the first instant it is these vulnerable people who will suffer most.”

He continued: “To remove any uncertainty and to support this important part of our society, I would strongly urge you to reconsider the terms of the compensation scheme so that all charities, whatever size, whether a trust, limited company or any other governance structure is covered by the FSCS.”