Banks and Charities just don't seem to mix
Julian Lomas
Over the last 16 years we have helped set up or incorporate over 100 small and medium sized charities. In almost all cases the most difficult step has been setting up bank accounts.
Key difficulties have generally been:
Lack of understanding of charities, particularly the processes for incorporating an unincorporated charity or conversion of a CIC to a charity.
Onerous due diligence checks on Trustees, including the need for in-person ID checks (way more so than for personal accounts which can be opened online with digital ID checks).
An aversion to Trustees living overseas (even a direct refusal to allow this), which is a problem for international societies, for example.
Long delays (months or even years) in processing paperwork with multiple stages often requiring additional documentation and repeat ID checks (because long delays mean previous checks are out of date).
Why is this such a problem?
It almost feels like most banks just don’t want charities’ business, particularly small charities. Most challenger banks don’t even offer banking services for charities (particularly because most funders require dual signatory bank accounts).
Presumably banks don’t make much money from charity bank accounts because they usually don’t charge in the way they do for business bank accounts. But surely they can enhance their reputation by supporting charities with user-friendly, low cost banking services?
Some also seem to be overly concerned about charities being used as a front for nefarious activities. While those are reasonable concerns, given the constant stream of Charity Commission reports showing malpractice or worse, surely a risk based approach would result in more proportionate due diligence for small, local charities who generally aren’t the subject of those Charity Commission reports and who anyway will only be banking small sums of money.
Honestly, we are baffled as to why it is so difficult for charities to open bank accounts.
For the charities involved, not having a bank account can be the difference between life and death because most funders will not give grants to charities until they have the right kind of bank account.
What can be done about it?
In many cases the honest answer is “not much” but we do have a few tips that might help in many cases:
Shop around to find a bank that give you confidence and consider a bank that specialises in banking for charities. They at least understand charities and the processes involved and want your business because, in some cases, they only offer banking services for charities. That said, we have clients who have had poor experiences with even these banks and most have much more limited functionality than high street banks (e.g. not offering integration with accounting software).
Make sure to find out early what your preferred bank needs from you to open an account, particularly what ID and other documentation they need for Trustees. if you feel like the person you spoke to isn’t confident about what is needed, call again and speak to someone else. In any case, asking two, three or four times is advisable because they often give different answers each time. Make sure they speak to their central charities team to get chapter and verse. This way there’s a reasonable chance you can have all the required documents ready when you need them.
If your preferred bank is likely to take a long time, consider opening an account with a specialist bank for charities (even if it doesn’t given you everything you want) so you at least have an account. Then you have more time to open the account you really want.
Start with a small number of Trustees and appoint more after you have opened your bank account.
In the end, most of the troubles we have seen stem from incompetence, ignorance or lack of interest from bank staff and there’s not a lot you can do to prepare for that, but at least you can try!
To find out more about how we can help with setting up and incorporating charities or charity governance more generally, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.