Solicitor Harriet Parfitt, in our Charities & Education team, highlights the difficulties faced by charities in accessing banking services, and outlines what guidance is currently available for voluntary organisations looking to open a bank account in England and Wales.
Why do charities need bank accounts?
The law governing the non-for-profit sector is founded on the principles of transparency and accountability. For this reason, funds raised and distributed by charities must be effectively safeguarded.
To manage and monitor cash flow, charities across England and Wales often rely on professional services, such as banks or accountants. In the absence of any regulation by a third-party, unsafe practices such as the use of personal bank accounts by trustees and off-line bookkeeping have the potential to impact public confidence adversely, and undermine the credibility of a sector that relies on voluntary donations and engagement. Besides, to raise funds from private and public grant funding organisations, a bank account is often necessary for a charity to be eligible to receive such funding.
Why is banking such an issue for charities?
In November last year, the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland wrote collectively to the Chief Executives of UK Banks, reporting the key banking issues faced by charities as follows:
- Charity bank accounts can be suspended or closed at short notice, causing abrupt and often prolonged disruption to access to funds;
- As the high street becomes dominated by retail and commercial banks, there has been a significant decline in the number of bespoke banking service providers (who tend to be more equipped at handling charity clients); and
- Banking staff appear untrained in the procedure(s) governing charity banking, resulting in frequent administrative delays and negative customer experiences.
What is being done about it?
In recent weeks, the Charity Commission has published new guidance, designed to support charities struggling to have their banking needs met (the Guidance). We have summarised the key findings from the Guidance below:
- Joint responsibility: The Guidance identifies the current onus on charity representatives to navigate an unnecessarily complex and administratively burdensome application procedure, in the absence of appropriate training of bank staff on how to assist trustees in opening accounts on behalf of their organisations. It recommends that the banking industry carries out comprehensive training for relevant colleagues on charity banking in order to alleviate this pressure.
- Independent advice: Among other resources, the Guidance directs trustees and other charity staff to a recent guide published by UK Finance, which helps charities decide which bank is best suited to their needs. The guide lists a wide range of banks, from household names to smaller, ethical service providers.
- Key takeaways: The Guidance recognises that the wealth of information available to trustees can at times be overwhelming and riddled with industry jargon. The Guidance distinguishes the most important advice as follows:
a) Charities should endeavour to keep their details as up to date as reasonably practicable, particularly considering that there are often frequent changes in trustees.
TIP: It is good practice to update your charity details on a yearly basis, at the same time that your charity is required to submit its annual report. Paragraph 4 of this separate guidance paper also provides further guidance for charities navigating financial control procedures at their bank or building society, but both guidance notes fail to recognise the significant time and ID requirements that any update will demand of all trustees.
b) Charities must be particularly vigilant of any overseas transactions and arrangements.
TIP: It is useful to provide banks with prior notice of any transactions that may be due to occur abroad, to prevent any unnecessary concerns being raised.
c) Charities have a right to complain if they are unhappy with the service provided to them by any bank, albeit this process too is slow and protracted Initially, any complaints should be made to the institution itself through their internal complaint procedure. Any charity will then have recourse through the Financial Ombudsman and the Financial Conduct Authority (the latter cannot resolve individual complaints but can log any pattern of complaints with the relevant service provider).
TIP: The Financial Ombudsman is only available to those concerned charities whose annual income is under £6.5 million.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
