Unfair Banking Practices Are Strangling Charities—It’s Time for Droit Au Compte

In the midst of a cost-of-living crisis, cuts to public services, and lack of funding for the Third Sector, charities are having to navigate through some of the most economically challenging periods, being extremely adaptable just to stay afloat. Rights holders are heavily reliant on their services. For most charities, nearly every day is an emergency. With all this in context, no economic challenge is more arduous than the challenge of simply maintaining a functional bank account, crucial to a charity’s ability to exist.

It is therefore both alarming and disturbing that our most recent research has uncovered that unfair banking practices are still hampering charities. The report, The Landscape of Debanking within Muslim Charities and its Impact on Charitable Activities, details the Muslim charity experience, including unexplained account closures, rejected applications, and delayed transactions. Though the report is recent, the issue at hand spans beyond two decades, still plaguing Muslim-led charities. Rather, the report explains how these challenges have only intensified, leaving organisations in an impossible position. Intended or not, banking practices, in the name of risk management, have only exposed charities to greater risk. Furthermore, it reduces a charity’s ability to serve some of the most vulnerable of communities who are deeply reliant upon them. The chilling effects of de-risking are in serious need of being addressed. Whilst combating financial crimes is paramount, it needs to be balanced with ensuring fair treatment of charities so that they can continue to deliver vital services to those who are in need.

The issue of debanking is not new, and yet, despite years of advocacy, we are nowhere near a meaningful resolution. Charities continue to face mounting challenges. The Charity Commission found that 42% of charities still experience banking difficulties, while the Charity Banking Challenges 2024 report revealed that over 90% of charities experienced banking issues in the past two years. The report further highlights that conditions have only worsened since a similar survey was conducted in 2022.

These findings only further MCF’s own research which found that 68% of Muslim charities have had account requests rejected, and 42% have experienced complete account closures. These figures tell a clear story: charities have been pre-labelled as high-risk, and the sheer scale of financial exclusion they face indicates systemic mistreatment by banks. Rather than being treated as essential actors in humanitarian and social development, they are viewed as liabilities.

The Financial Action Task Force (FATF) defines “de-risking” as the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with the FATF’s risk-based approach. But does the closure of accounts, or delays to payments actually eliminate risks from our financial system? Our report seems to provide compelling evidence that bank de-risking merely shifts the burden onto charities, leaving them vulnerable to various forms of risk. By law, charities must manage and account for their finances properly, access to a bank account is crucial for them to function effectively and lawfully. Without access to an account, or in the case of frozen payments, many charities have had to resort to “risky” workarounds. Trustees have been forced to use personal accounts to manage funds, while some charities have had no choice but to handle large sums of cash to sustain operations and meet financial obligations. In certain, perceived high-risk areas, charities could be forced to operate outside of the formal banking system. All of said practices not only increase the risk of financial mismanagement but also makes charities more vulnerable to fraud and security threats. While de-risking removes risk to the bank itself, banks end up “throwing the baby out with the bathwater” as these risks are shifted onto charities. De-risking, therefore, does not prevent financial crime—it exacerbates it.

Insulated in the comfort of corporate boardrooms, bank decision-makers are completely oblivious to the fact that de-risking practices have very real consequences, in the extreme, life-threatening. The impact of de-risking extends beyond the administrative hurdles of finding a new bank account or making alternative arrangements. At its worst, it directly hinders delivery of crucial humanitarian aid in emergencies, and puts lives at risk.

Our report found that 11% of charities had faced delays in delivering crucial projects, and 17% of charities had to totally suspend operations in certain areas. Due to banking restrictions, charities were unable to deliver emergency relief. While delays to projects result in charities not being able to reach vulnerable people in need in appropriate time, it also has the potential of straining relationships with local partners and organisations. The deterioration of trust could have catastrophic consequences, as one charity reported such delays leading to security risks for charity personnel. In one case study, frozen transactions meant a charity was unable to pay local vendors for up to two months. Fed up, they decided to take matters into their own hands, storming the field office at gunpoint, demanding their money. This harrowing report exemplifies the unintended consequences of de-risking, and the jeopardy charities are placed in. De-risking risks lives. When banks block transactions under the guise of compliance, they fail to see the human cost of their decisions. For vulnerable communities relying on timely aid, every delayed payment can mean the difference between life and death.

The narrative imposed on banks paints charities as inherently risky, but nothing could be further from the truth. The Third Sector operates with some of the most robust accountability mechanisms, driven by their vital responsibility to report to donors and uphold trust. Rather, this report, the evidence presented within it, and the case studies contained within, all point towards a desperate need for a solution. Charities are not asking for special treatment, just fair treatment. The current financial climate needs redress to ensure there is a balance; while fighting financial crimes is a must, charities cannot continue to be collateral damage. Charities need better protection from unfair banking practices, whether we adopt a Droit au Compte approach much like our European neighbours, whereby a charity’s right to a bank account is recognised, preventing charities from being rendered account-less, or another effective solution.

Fair and transparent banking for charities isn’t just necessary, it is long overdue.

Download: The Landscape of Debanking Within Muslim Charities and Its Impact On Charitable Activities.