The charity (de)banking landscape

Last year, the temporary debanking of Nigel Farage sparked a public discussion around access to banking. Questions around who should have access to banking, and the consequences of losing access, permeated public discourse. The situation brought much needed media attention to incidents of charities being debanked across the UK, and the ruinous impacts of sudden and unexplained bank account closures on the organisations, trustees and staff involved. Uncertainty around access to banking is unfortunately a lived reality for many voluntary sector organisations across the UK, and debanking is just one example of the problems the sector is facing.

Charity banking landscape

Charities rely on banking services not only for the secure handling of donations, grants, and overall financial management, but also for the execution of administrative tasks such as payroll and budgeting. With banking playing such a pivotal role in the day-to-day operation of charities, the consequences of limited or poor access can be severe.

Finding an account

Finding a suitable bank account has become increasingly difficult for many reasons. Greater competition amongst banks has reduced the quality of services for the sector, with some banks withdrawing completely from this segment of the market - leaving a reduced number to operate accounts on which only limited profits can be made. Not all banks offer a charity or community account, and the ones that do may charge additional fees or restrict the number of trustees an organisation can have as signatories.

A charity’s legal status will also determine the type of account which can be used. Sometimes charities are left with no option but to open a business account, leading to problems down the line with maintaining the account as the way a charity is governed is different from how a business operates.

The migration to online banking has also occurred at a faster pace than banks’ ability to operate charity accounts online. Some banks don’t offer dual authorisation for online banking, which is a fundamental requirement for most charities.

SCVO have a banking comparison table which is regularly updated to help charities in Scotland identify the best options available. As well as the high street banks, there are links to institutions that have strong links to the voluntary sector, and there is lots of information on the practical issues to consider when choosing an account and the documentation you will need to provide.

Opening an account

Some banks request a solicitor’s letter to verify the names of trustees opening a bank account. While changes to Scottish Charity Law mean the Scottish Charity Regulator (OSCR) is now required to publish a publicly accessible trustee database, this will not be available until 2025. With costs of up to £800 for a solicitor’s letter, it is financially prohibitive for most new charities to set up.

Organisations across the UK are also experiencing long delays with getting a bank account set up, pushing some organisations to rely on trustees’ personal accounts in the interim period, which raises serious concerns about financial governance.

Maintaining an account

The barriers to maintaining a bank account are wide ranging. The widespread closure of bank branches and mobile banking services, especially in rural areas, has left many organisations with impossibly long journeys to access a bank branch; not only affecting the sector's access to cash, but also removing opportunities for collaboration and understanding between bank staff and local charities.

This has largely been replaced with Know Your Customer (KYC) processes, a regulatory requirement for banks to verify client identities for anti-fraud compliance. Charities are often viewed as high risk due to the way they operate, which can be exacerbated by a lack of understanding by the banks, and poor financial governance by some charities. For example, some charities are ‘red-flagged’ when updating their account or business details because banks do not understand charity governance. This has resulted in incidents of charity debanking where accounts are frozen or closed without warning, and with no obligation for banks to provide a reason why. Charities, especially those serving Muslim communities, face additional challenges over the operation of their accounts because of international conflict. If charities are unable to access their funds while their account is frozen, they risk becoming financially destitute for an unknown amount of time, which has led to organisational closure. Striking the right balance between compliance and the efficient operation of charities is crucial.

What is being done to resolve these issues?

In 2022, UK Finance - the trade body for the financial sector in the UK - was tasked by the Treasury to work with banks and voluntary and community sector organisations to resolve some of the sector’s banking issues. UK Finance launched a Community Banking project, and SCVO joined a wide range of voluntary sector organisations, including our sister councils NCVO, WCVA, NICVA, as the Scottish partner to ensure the needs of our sector were represented and advocated for.

Phase one of the project began in 2022. Third sector partners and banks were consulted to identify pain points for charities and banks in the banking process. UK Finance used these findings to propose a set of web-based tools to address different issues along the charity user journey. Industry steps for banks were also identified. Phase two took place in 2023 and involved a series of joint workshops for voluntary sector organisations and bank representatives to discuss findings from phase one and finalise content for UK Finance’s proposed tools. Phase three is expected to take place in 2024 and will see the launch of UK Finance’s new website hub, the Voluntary Organisation Banking Guide.

At the end of last year, the Chief Executive Officers of the three UK Charity Regulators also published an open letter directed at the UK’s main high street banks, which gained media coverage in the Guardian, the Independent and the BBC. The letter highlighted pressing issues faced by charitable organisations in their interactions with banking services, calling upon banks to: simplify the process for setting up a charity bank account; recognise that it is in all our interests to safeguard donated funds and to support charities to prioritise meeting the needs of their beneficiaries; and develop comprehensive training materials for bank staff that enhance their understanding of charity structures and governance mechanisms to prevent delay driven by misunderstanding.

Reflecting on the work done so far, UK Finance’s web-based tools will be the most comprehensive guidance available to charities and banks across the UK. The hub will equip charities with the information needed to understand banking processes and requirements, offer banks an overview of how charities and community groups are structured and governed, and provide jargon busting for both sectors. These tools are a testament to successful collaborative work between charities and banks. However, web-based tools can only address issues caused by misinformation within the sector. It’s clear from the breadth of the issues experienced by charities across the UK that there are larger structural issues at play. Web-based tools will not improve customer service, offer adequate financial products, or prevent unexplained account closures. A one-sided solution to a two-sided problem is a square peg in a round hole.

The unspoken reality still felt by many is that banks have no commercial or regulatory incentive to change or update their service offer to the sector. Without action, the charity banking landscape will become increasingly unnavigable. This will, if it hasn’t already, affect organisations’ ability to manage their finances appropriately, putting these organisations, the communities they support, and the sector’s reputation, at risk.

What to do if you are experiencing problems?

Under new Consumer Duty requirements set by the Financial Conduct Authority in July 2023, financial institutions have a responsibility to deliver good outcomes for retail customers and address issues that risk causing consumer harm. This includes clear communication, fair prices for products and services, and good customer support. If you feel your bank is not meeting Consumer Duty requirements, the FCA recommends filing a complaint with your bank first, then contacting the Financial Ombudsman Service if you are unhappy with their response. You can also file a complaint with the FCA for wider monitoring purposes.

When setting up or switching accounts, charities should explore their options and look to other banks, rather than the high street ones, that have a better understanding of how charities operate. SCVO’s banking comparison table highlights the main features of current accounts from institutions that have strong links to the voluntary sector, or who have a presence in Scotland. SCVO are also hosting a webinar on Banking challenges for charities with CAF Bank on Thursday 13 June.

Finally, the charity partners involved in the UK Finance banking project are coordinating a survey of voluntary sector banking experiences in the UK. We encourage you to respond to the survey so we can continue to advocate for better banking services for voluntary organisations. The deadline for completion is 15 May.

If you respond to the survey and would like to feature in an SCVO case study, please get in touch with Kyrstie Brown at: kyrstie.brown@scvo.scot.