Charities could face 'an avalanche' of bank account closures, report warns

The warning comes in a report produced for the Financial Conduct Authority about anti-money laundering efforts by banks

Banks: 'derisking'
Banks: 'derisking'

Hundreds of charities could face having their bank accounts closed because of an impending "avalanche" of derisking among banks, the Charities Aid Foundation and the Charity Finance Group have warned.

The warning comes in a report produced by the Financial Conduct Authority called Drivers & Impacts of Derisking, which looks at the impact of banks’ anti-money laundering efforts on charities and other institutions.

The study, for which both CAF and the CFG were interviewed, says that CAF, which works with 1,250 charities, and the CFG, which has 2,300 members, were both concerned that there might soon be an "avalanche of derisking" affecting smaller institutions.

The FCA says in the study that banks had reported that many of their account closures were motivated by a need to lower their overall risk profiles, to realign their businesses or to pay closer attention to compliance in the wake of the global economic crisis.

The report, for which a range of small and large charities and banks were also interviewed, as well as the Charity Commission, says charities were among those groups with the greatest chance of facing such closures, along with money service businesses and financial technology companies.

Foundations and cultural associations centred on certain groups such as ethnic communities face a heightened risk of losing their banking facilities, the report says, as do unregistered charities based outside the UK.

It says one bank, which is not named, reported having closed 59 charity bank accounts in 2014 for reasons that might relate to compliance, including concerns about financial crime. 

The report says that some charities have been forced to pay significant sums for legal advice in order to maintain their accounts.

It says that one major charity paid £40,000 for advice on sanctions regimes in order to continue operating in certain jurisdictions and that it also had to invest in training its clerical staff in dealing with policy issues and complex requests of information from banks.

The study says some charities reported that account closures could pose a danger to their employees, whose lives could be at risk if they were restrictions placed on how and to whom they could give money.

"We are not talking here about the freedom to give money directly to known terrorists but the ability to distribute aid monies using local systems which may inevitably pass through areas controlled by terrorists," says the report. "We are also talking about maintaining aid flows to areas where the recipients may resort, out of desperation, to aggressive measures against aid staff."

The study says CAF and the CFG had been trying to establish the number of charities that had lost bank accounts in recent years but it had proved difficult because most of the affected charities had not wanted to admit it had happened for fear of jeopardising other banking relationships.

A refusal or derisking by one bank compromises the success of future approaches to other banks, the charities said.

The report comes after the Treasury and the Home Office published the National Risk Assessment of Money Laundering and Terrorist Financing in October, which said that the risk of financing terrorism within the charitable sector were medium-high, despite proven abuse being rare.

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