Charity Bank has appealed to the Charity Tribunal against a decision by the Charity Commission not to let it change its governing documents so it can comply with banking rules.

The social lender, itself a charity, applied to the Charity Commission last year to make the changes after it realised that its existing articles of association did not allow it to comply with new European banking regulations.

According to the bank’s chief executive Malcolm Hayday, unless the bank is permitted to change its governing documents and comply with the new EU rules, its ability to attract further capital investment and so meet the growing financial needs of the UK’s charity sector will be severely limited.

However, Hayday (pictured) acknowledged at the time of applying that allowing the changes would not be straightforward for the regulator, as they would effectively allow Charity Bank to distribute profits to its charitable shareholders, a decision that could have wider implications for all charitable companies.

Now the Commission has advised Charity Bank that it will not be making all the changes the bank wants.  It said:

"Charity Bank applied to the Commission for prior written consent to changes to its articles … because of requirements in the law relating to banking. The Commission was able to give consent to some of the proposed changes but not all.

"The Commission and the charity are continuing to discuss possible solutions. The charity has appealed to the First-tier Tribunal (Charity)."

The new EU rules are designed to prevent a repeat of the global banking crisis at commercial banks.

Charity Bank’s biggest shareholder is Charities Aid Foundation but its 19 shareholders also include Esmée Fairbairn Nominees, Tudor Trust, NCVO and the Vodafone UK Foundation.