Banking issues in the charity sector

The Charity Commission wrote an open letter to all UK high street banks in November 2023 to request their “urgent action to help hard-pressed charities” in addressing “avoidable frustrations” and “substandard service” from banks in relation to charities’ abilities to access banking services.

The letter explained that charities have had accounts closed or suspended, without warning and for long periods of time and faced a reduction in bespoke banking services. They also experienced poor customer service and administrative delays, and found that online banking is not suitable for the way in which charities operate.

Charity Commission and Financial Conduct Authority reports

The Commission followed its open letter with a report on banking issues experienced by the charity sector, publishing its findings in March 2024. The report highlighted a number of issues that the charity sector is facing.

They found that 42% of trustees have experienced poor service from banks in the 12 months prior to March 2024.

Other key findings from the survey include:

• 32% of respondents had issues trying to update their charity’s contact details or signatories
• 18% had difficulty trying to open a new bank account
• 15% found it challenging to comply with identity requirements of their bank
• 14% found it difficult to understand what their bank required of them.

Three main areas of concern, as a result of poor access to banking services for charities, were noted by the Commission.

Firstly, risks to the provision of charitable services, resulting from charities being unable to meet financial obligations, such as paying staff, which leads into the second concern – unsafe banking and financial practices. For example, the use of trustees’ personal bank accounts to meet financial obligations, which is a direct contravention of the Commission’s guidance.

Another issue raised was the potential for a longer-term impact on morale of volunteer trustees. The survey revealed that some trustees have resigned over frustrations around disruptive banking services.

Recruitment of trustees is an arduous task at the best of times. Difficulty in retaining the service of trustees who are of a sufficient calibre and expertise for the charity’s needs, however, is arguably a more pressing concern in light of the banking issues.

A lack of personal relationship managers in high street banks has also been noted as an issue, leading to queries that are raised through customer service teams going unanswered, as these teams do not have the specialism required to assist with charity banking.

One high street bank’s website, where its eligibility requirements for a charitable bank account are listed, implies that relationship managers will not support “everyday transactional banking products and needs”, but will provide assistance where transactions exceed £100,000.

As part of a cross-sector effort to alleviate the issues, the Financial Conduct Authority (“FCA”) published a report in September with further findings relating to charities’ experience with the banking sector. They reported that charities have faced difficulties in obtaining and maintaining a payment account, and in particular, satisfying bank’s due diligence and anti-money laundering requirements. For example, banks have required that all signatories to an account be present in branch when trying to change signatories, which of course presents issues for trustees, especially where they may have a significant number of trustees.

The FCA said, in its report, that it would be holding a roundtable discussion with charity representatives and banks to discuss the issues noted, and any potential solutions.

UK Finance, who represent the banking and finance industry operating in the UK, have been spearheading a project aimed at developing an undertaking of the issues that many charities are facing with regards to banking. The culmination of this project resulted in the publishing of a step-by-step guide for charities looking to open bank accounts. The information on the website includes:

• Guidance on choosing the structure of the charity
• Guidance on determining the banking needs of the charity
• An account finder, detailing different charitable bank account providers and the profile of charity that they would be best suited for
• A checklist of information that the charity will need to open a bank account
• Guidance on the proper maintenance of a bank account
• A selection of frequently asked questions.

David Raw, who is the managing director of commercial finance at UK Finance, said that they wanted to “make the process of opening and managing a bank account as clear and straightforward as possible”.

He goes on to explain that the hope is that the guide will improve charities’ interactions with the banking sector and alleviate some of the issue they have faced.

Conclusion

Autumn will bring more scheduled meetings between the Commission and high street banks to discuss the issue. The Commission’s position, at present, is that there has been some progress since their open letter of November 2023, but they “still think there’s more to do” and they have reasserted their intention to continue addressing the issue.

The Commission suggests that charities approach the Financial Ombudsman to raise issues and complaints, where these are not sufficiently dealt with by banks themselves.

In the interim, charities should refer to the guidance published by UK Finance for assistance with setting up and maintaining a bank account for their charitable purposes.