Charity Bank will relinquish charitable status to meet new financial rules

Changes necessary to allow investment, but will not alter bank's mission to lend to charities and social enterprises, says chief executive Patrick Crawford

Charity Bank will give up its charitable status next month to meet new banking rules, it announced today.

A statement from the bank, which lends only to charities and social enterprises, said it had been forced to make changes to its status because "financial rules have been tightened to strengthen the financial profile, behaviours and management of banks" as a result of the recent economic crisis.

Patrick Crawford, chief executive of the bank, told Third Sector that he expected the changes, which have been drawn up with the approval of the Charity Commission and the Financial Services Authority, would allow the bank to increase its balance sheet in the next five years from £93m to about £250m. He said he expected new investment to come mainly from charitable foundations and other social investors.

He said that if Charity Bank had continued to operate as both a bank and a charity, new rules imposed by the FSA would have meant it could not take this type of investment and would have had to rely on grants to raise funds.

"We don’t think we should be asking the sector for grants and donations at a time when it’s already stretched," he said.

The changes will not alter the mission of the organisation to lend to charities and social enterprises, said Crawford, who added that this mission will be enshrined in the new articles of association.

He said the new articles would include a "mission lock" requiring at least 90 per cent of the bank’s ordinary shareholders to agree to any changes.

"We feel we continue to have a charitable purpose," he said. "But the rules are the rules, and we have to follow them."

The bank will still lend only to charities and social enterprises as it does now, he said, and will retain its name.

The bank has started to obtain formal approval for changes to its articles of association from the Charity Commission and the FSA. The Charity Commission will publish a scheme on 25 March that will permit the necessary changes. Subject to a general consultation, that scheme will be put in place on 30 April.

Under the scheme, capital currently held by the bank will pass to the Charities Aid Foundation, its principal shareholder, to be held in trust for the charitable purposes of the bank. It will then be re-injected into the bank in the form of a grant.

A statement from the Charity Commission said it "considers that it is in the interests of enabling the furtherance of the charitable purposes of Charity Bank to agree to changes in Charity Bank’s articles which mean it would cease to be a charity, but can continue to further the purposes for which it was established".

Charity Bank had previously appealed to the charity tribunal over this issue, however that appeal is currently stayed.

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