ICAEW is calling for urgent action to deal with the banking challenges that charities face in their day-to-day operations.

Failings in the banking system mean many charities do not have access to adequate banking services or their experiences of bank service fall woefully short. 

Some charities have had their accounts closed without warning, causing them to miss out on grant funding, unable to pay staff and struggling to function normally at a time when their services are under extreme pressure.

Kristina Kopic, ICAEW’s Head of Charity and Voluntary Sector, says: “We hear regularly that charities, particularly smaller and unincorporated ones, are facing a myriad of obstacles with their banking needs. These include the reluctance of high street banks to offer accounts with appropriate internal controls, freezing of accounts due to identification issues, inadequate customer service, high charges and lengthy delays in implementing new mandates.” 

According to a recent survey by the Charity Commission, 42% of 2,500 charities have experienced banking problems, including having accounts frozen without warning and difficulty opening new accounts.

‘Computer says no’

Experts blame a lack of understanding about the charity sector among High Street banks and a ‘computer says no’ attitude that fails to take into consideration widespread use of volunteer trustees and the unique nature of charities.

The banking woes are compounding an already difficult environment for charities. Half of charities say they are at full capacity and cannot help anyone else, according to research from the Charities Aid Foundation published in January. Nearly two-thirds say they are having to do more with less compared to a year ago, two-fifths are using their reserves to meet operational costs and a similar amount (38%) are asking funders for help with increased costs.

Some banks understand the needs of charities better and offer tailored banking products. However, Kopic says that the banking problems facing charities are so widespread that ICAEW has been prompted to raise the difficulties reported by members with the charity regulators, UK Finance and the Financial Conduct Authority. 

ICAEW is not alone in voicing its concerns about the seriousness of the situation. In November last year, the UK’s charity regulators wrote a joint letter to the chief executives of UK banks to highlight widespread issues across the charity sector and to request urgent action.

In the letter, the chief executives of the charity regulators in England and Wales, Scotland and Northern Ireland asked the banks to streamline their services so that charities can operate in a way that does not create serious governance issues.

Money laundering issues

Charles Worth, Head of Business Law at ICAEW, points out that this is part of a wider issue and impacts non-charitable SMEs too. “The recent report of the All-Party Parliamentary Group on Fair Business Banking concluded that it is a complex problem and that resolving it will need collaboration from banks, the government, and regulators.

“The report highlights that anti-money laundering regulations may to some extent be driving bank behaviour and the open HM Treasury consultation on improving the effectiveness of the Money Laundering Regulations is therefore welcome in this context.” 

Lourens du Plessis, Managing Director of Church and Charity Professional Services at Stewardship, itself a charity, said banks often failed to take into consideration the unique circumstances facing charities, in particular widespread reliance on volunteer treasurers and trustees, against a rising tide of regulation.

“We see this often enough: banks don’t seem to understand that it’s just not feasible to ask for proof of address and ID from 15 volunteer trustees who aren’t in the same place all the time, and they want it all – in some cases, literally yesterday – or the charity’s account is closed without notice.”

Banks consider charities as risky because of the threat they face from financial crime. As a result, charities are subjected to increased due diligence from banks. This is unlikely to change in the short term and Kopic recommends that charities are proactive in their banking relationship.

According to Du Plessis, the perception of increased risk largely stems from a lack of understanding about the nature of charities’ activities and how they get their income. “Banks’ processes aren’t geared towards the nature of charities,” he says.

Challenging task

Du Plessis agrees that some trustees do need to step up. “However, for the most part, volunteers are doing their best to comply and are very conscientious about their duties. But it’s very difficult when you have to balance these demands on top of a day job, family responsibilities, and then to try and get through to a bank that doesn’t answer your calls, that gives you conflicting and contradictory information very often, and in a number of cases, seem to lose information provided to them when asked. 

“We’d like to see an appreciation of the challenges facing volunteer treasurers and trustees. But broader than that, there’s a widespread lack of understanding about charities – the way they function, the organisational and legal structures, the regulatory frameworks. For example, charities are regularly asked by banks who their beneficial owners are – but, by definition, that is not relevant for charities. We need education, training and upskilling within banks, on how charities differ from commercial organisations. And what constitutes risk in those cases and what doesn’t.”

Du Plessis also believes that there is a social and moral responsibility on banks to provide a better service to the charity sector. “Banks benefit from society recognising that they have a special role in our economic infrastructure, through implicit taxpayer-funded government guarantees. I think there’s a responsibility on them to return some of that support and goodwill, and help enable the functioning of the charity sector.”

Top charity banking issues

• Reluctance of some high street banks to provide accounts to charities, particularly smaller and unincorporated ones. 
• Accounts that lack the necessary internal controls recommended by the Charity Commission, such as dual payment authorisation.
• Mainstream and non-specialist banks closing charities’ accounts, citing compliance risk as a significant concern.
• Banks requesting signatures from all trustees, even when some no longer serve on the board, causing delays in accessing banking services.
• Poor customer service due to the absence of personal relationship managers in high street banks. Queries left unresolved due to a lack of understanding about how charities work. 
• Forms not designed for charities and which fail to include comment fields that would allow trustees the opportunity to explain why none of the given options apply.
• Standing and transaction-based charges that are disproportionate to the volume of transactions and income levels of small charities, diverting resources away from their core missions.
• Difficulties transferring money abroad for charities that operate internationally, particularly in areas of political unrest and conflict.

Charity resources

ICAEW has a wealth of resources within our Charity Community, including trustee training which is free and open to all.

• ICAEW’s free online Trustee Training Modules provide an overview of charity trustees’ legal and financial responsibilities and their strategic and operational considerations. 
• Find out more about ICAEW’s Better Regulation Project.