The chief executive of CAF Bank is urging the banking sector to step up in its efforts to understand how charities work, amid escalating banking issues across the third sector.

Digitalisation of banking customer journeys, a perception that the charity sector poses a higher financial crime risk, and genuine misunderstandings about how the charity sector works are among the underlying factors that have resulted in a growing number of charities being offboarded by their bank account providers. 

Almost one in five – 18% – had difficulty trying to open a new bank account, 15% found it challenging to comply with identity requirements set by their bank and a further 14% found it difficult to understand what their bank requires of them, according to a survey conducted by the Charity Commission.

Alison Taylor, CEO of CAF Bank and ICAEW member, will reflect on the findings of the research in a session at ICAEW’s Charity Conference on 23-24 January 2025, which will explore the challenges that charities face accessing banking and financial services and draw on critical ongoing discussions between UK banking executives, charity regulators and sector leaders as to how these can be addressed. 

Increasing challenges

Taylor says the risk of charities having their bank accounts unexpectedly closed has been an escalating challenge over several years. “In the mainstream banking world, I have seen a real stepping back from banking charities. We saw through the pandemic an escalation in the numbers of charities either being declined a new bank account or being offboarded, and that has definitely continued.”

“One reason is that the high street banks have increasingly digitalised their customer journeys, and small and medium charities tend to be in that business stream where they’re expected to self-serve online. And because a lot of charities work differently from small businesses, they don’t flow through those digital customer journeys; they need human intervention and that causes both operational challenges for the banks and cost.” 

“From a charity’s perspective, trying to get hold of people at banks to resolve issues is a lot more difficult than it used to be, so there can be quite a lot of grit in the relationship,” Taylor adds. 

Reduced risk appetite

Another challenge is the reduced risk appetite of many banks that carry the perception that charities pose a higher financial crime risk, particularly those charities that may receive significant international donations, or move funds or humanitarian aid to high-risk and possibly sanctioned jurisdictions. 

At the same time, a lack of understanding among staff in non-specialist banks about how charity trustee boards operate versus a corporate board of directors is aggravating problems, Taylor believes. 

The Charity Commission’s annual sector survey, published in March, also revealed that 42% of trustees said their charity experienced poor service from their banks in the past 12 months, 6% had experienced account freezes or being blocked out over the past year and 7% of respondents reported that their bank had lost their records.

Compromised governance

“Banking is so fundamental, you can’t operate without it,” Taylor says. “One of the worst outcomes of banking problems, particularly for small charities, is that they can end up being pushed into a place where their governance gets compromised, for example if they use workarounds such as using trustees’ personal accounts, which is entirely well-meaning, but not an appropriate way to manage the charity’s affairs. And that also makes them much more vulnerable to internal fraud or error.”

Governance reasons aside, banking problems overlaid against the cost-of-living crisis are pushing some charities to the brink, Taylor warns. “I am a passionate believer in small charities because they plug an awful lot of gaps in need – smaller local issues or medical research into less common diseases that the larger charities don’t meet. Small charities and community-led charities have a hugely important role to play and yet they are the ones that disproportionately experience the banking challenge.

“It’s absolutely right that banks understand how a charity operates and understand the flows of funds in and out. Checks are essential to comply with regulations, but are also there for charities’ protection and helping them to make sure that they’re not victims of fraud,” Taylor adds.

Taking financial crime seriously

But Taylor doesn’t believe that the onus should be on trustees to step up in their dealings with banks. “I think it’s more an understanding that when a bank says it needs to reconfirm details of certain trustees to make a significant payment, or because activity on an account has triggered a review point, that this isn’t about being critical or awkward. 

“This is about trying to make sure that the whole sector can show that it takes anti-financial crime regulation seriously. We’ve all got a role to play in that. If you bring it back to why we are doing these things, that’s more important. Because there are bad actors that are underpinning crime in this country and all over the world. And we’ve all got a role to play in knocking that on the head.”

CAF Bank is a subsidiary of the Charities Aid Foundation, which supports more than 14,000 charity and voluntary organisations throughout the UK and was recently named Best Bank and Best UK Charity Bank Account 2024 by Charity Excellence. CAF Bank recently provided input into a Voluntary Organisation Banking Guide produced by UK Finance with support from the Charity Commission, the Treasury and the Department for Digital, Culture, Media & Sport to help charities understand the information requests that they get from banks. 

If charities find themselves in a tricky situation with their bank, Taylor says the best advice is try and engage early. “What would really help banks navigate the sector is an understanding of what the charity does and how it operates, and advance notice if it’s going to suddenly make a one-off large distribution of funds or if it’s changed trustees. 

“And when a charity gets an information request, particularly if that seems to be a KYC/CDD (know your customer/customer due diligence) review, engage with it quickly, and don’t stick it on a shelf and let the clock tick down because it can take a bit of back and forth.”