If you’ve never worked in the higher echelons or financial department of a charitable organisation, you may be forgiven for thinking that setting up a bank account for a good cause is an easy prospect. However, this is not necessarily the case for various clients I have worked with and charities I’ve spoken to.
Obviously, the financial industry has to be very careful of practices such as money laundering, and it has requirements under numerous Acts to carry out due diligence on any organisation looking to open an account—more so when it may involve public money, e.g. funds raised, grants awarded or money earned (in the case of CiCs).
Whilst you can open an account online in minutes for personal use, it gets much harder when you’re opening one for an unincorporated group, social enterprise or registered charity.
There are only a select few financial institutions who will even consider opening an account for a charitable organisation. The red tape that has to be passed concerns such things as: the signatories on the account for withdrawals, and their relationship to each other; whether the organisation is registered with the Charity Commission and/or Companies House (depending on its legal status); where the money deposited in the account is likely to originate from, and so on. On paper, this is probably logical, for the very reason I’ve already stated—money laundering and similar nefarious activities—but for those charities and groups with honest intentions and credible applications, the hoops that have to be jumped through can border on being unfair or unnecessarily strict.
There are some organisations (e.g. larger charities, local churches, council departments, etc.) that may agree to share their bank account with a smaller/newer charitable entity—which is one way to get round the red tape, particularly if you want to hit the ground running with applications to funders. This is good news for some very small community groups who don’t have enough people within their organisation to form a recognisable governing structure. Though sharing a bank account may sound the ideal solution, it does muddy the water for both organisations from an accounting point of view, and some funding bodies/grant-makers would be hesitant to give a financial award to any charity or unincorporated group that didn’t have a bank account of their own.
Community fundraising may also create the need to pay in some hard cash and lots of bagged change, which is definitely not something you can do online. Paying in cash is a service most banks are trying to reduce, and something they’ve clearly been successful at, given the number of bank branches they feel justified to close. This seems to be just one of the examples that show the disparity between what banks want to provide versus the needs of charities.
Some banks insist that at least one of the applicants already has a bank account or other product with the financial institution being applied to, which can limit options for a charity. It’s also an important and understandable request by charities that any account they’re able to open carries affordable rates for transactions/services—free banking is the ideal, but this may not be easy to obtain. Maybe this is why offering accounts for charities is low down on the list of a bank’s priorities—it’s unlikely that they will make a lot of profit from a third sector applicant, so why would they go out of their way to welcome them?
It’s fair to say that registered charities will have more options than a CiC. The latter, being arguably as much a commercial business as it is a charitable enterprise, may seem an ideal candidate for a business banking account rather than one suited to charities. This, instead of widening the banking options to CiCs, actually narrows them; I’ve spoken to CiCs who feel they don’t fit in either camp, which makes it difficult to work out which account basis is right for them.
There are more than 26,000 CiCs in the UK, which is significant. It’s maybe a trick that’s being missed by the banks, to not offer an account suited to CiCs; given their potential to trade, the banks may realise more profit from these organisations. It would certainly make life easier if such an account existed (there may be one; I’d be happy to hear more about it if so!).
If you need help with the set-up of your charity (of which obtaining a bank account is just one small part), contact me here: firstname.lastname@example.org