Charity Bank ceased to be a charity at close of business on Friday (31 May) following changes in European banking regulations that make it impossible for the body to continue as both a charity and a bank.

However, the Charity Commission has given its approval to the Bank’s proposals to continue operating as a bank and still secure its operation for charitable purposes.

This means that it ceases to be a charity but can continue to further the purposes for which it was established. It will retain its existing mission and charitable purpose and these will be enshrined in proposed new articles of association.

The Commission had been in discussions with Charity Bank, its principal shareholder Charities Aid Foundation, and the former Financial Services Authority (FSA) concerning recent amendments in banking legislation that necessitated Charity Bank to make changes to its articles in order to continue to operate as a bank.

Those article changes mean that while the Bank is no longer a charity, it continues to be owned largely by charities and used by them to achieve charitable purposes. To comply with charity law, certain property owned by Charity Bank must still be used for such a purpose, and on Friday its capital was transferred to CAF as principal shareholder, held on trust for the current charitable purposes. CAF also made a capital grant to the Bank as a social investment on the same day.

As a result of its change in status, Charity Bank’s ordinary shares are now capable of being counted as 'core tier one capital' under existing as well as proposed financial regulation. This put the Bank in a strong position to meet new capital requirements imposed on banking institutions.

Commission: Charity Bank 'a unique case'

Kenneth Dibble, chief legal adviser to the Charity Commission, described this case as having “specific and unique circumstances”, and said that it was in the interests of enabling the furtherance of the charitable purposes of Charity Bank to agree the changes in Charity Bank’s articles.

“Our primary concern is the protection of charitable assets and ensuring that these are used for their existing charitable purposes,” said Dibble. “We believe that this approach is not only in the interests of the furtherance of Charity Bank’s former charitable purposes, but is also in the interests of charities that benefit from its services. The closure of Charity Bank would have represented the loss of a useful resource for the furtherance of charitable purposes more generally.

“This unique case demonstrates our commitment as regulator to maintain the wider public interest in charities by being innovative in the way in which we both registered Charity Bank in the first instance, but also have now sought to protect its charitable assets, something other bodies may not have applied the time or effort to do.”
 
Last month the founder and former chief executive of Charity Bank Malcolm Hayday described the need for the change as “sad”, but said he was pleased that the Bank would be able to carry on its mission despite a change in legal form.

Charity Bank’s income for the last financial year was £4.9m. It was the only operational bank that also had charity status, registered as a charity in 2002.

The Bank was recently chosen by the Big Lottery Fund to deliver its £10m social investment fund for small organisations.

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