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How to structure and manage a charity’s bank accounts

Posted: 10/03/2023

Charities can be structured in any number of different ways, whether a charitable trust, unincorporated association, a charitable company, or a charitable incorporated organisation, not to mention charitable community benefit societies or charities established by, for example, a Royal Charter.

The type of structure is important as it has an impact on all facets of a transaction, from who can be a party to the documents, to who can actually sign them, and, more fundamentally, whether the entity has the power to make the transaction in the first place.

As you can imagine, the result of this is that writing about charities can often create a rabbit warren of dos and don’ts dependent on the type of entity being discussed. As such, this article attempts to take a bird’s eye view of the interaction between charities and the world of finance, and in particular, banks.

Bank accounts

Increased regulation is putting a greater requirement on banks to know and understand their clients’ ownership structures. Numerous banks have been the subject of large fines for failing to ensure that their know your customer (KYC) protocols have been followed and, given the regulatory framework that they must adhere to, it is obvious that banks have tightened up their requirements in this regard.

It is apparent, however, that on occasion, a disconnect exists between the bank’s requirements, and the ability of a charity to satisfy the bank’s requirements for either opening, or keeping open, its bank accounts. In a world in which there are so many different structures available to charitable organisations, it is no wonder that charities sometimes struggle to meet the bank’s requirements.

This disconnect can arise for a charity even when they have longstanding relationships with their bank. Banks are required to conduct regular checks to verify account holders’ details and failure, on behalf of the charity, in providing this can cause difficulty and frustration, and ultimately lead to the accounts being unavailable. If a charity’s bank account has restrictions placed on it by a bank, then, depending on the impact this has on the charity, this may constitute a serious incident that requires reporting to the Charity Commission.

As such it is important that charities are proactive in ensuring that they maintain a constructive dialogue with their bank and are ready to provide information promptly upon a request. This is especially true if there has been a change in structure, for example.

As it is the charity’s responsibility, it is strongly recommended that:

  • trustees exercise effective general control over their charity’s bank accounts;
  • regular checks are made to ensure that their charity’s bank accounts are operating as intended;
  • the signatories for each account are correct and kept updated;
  • the banking portal (if there is one) is checked on a regular basis for any correspondence from the bank which may not have also been sent by post or email;
  • a keen eye is kept on all governance and legal developments in the sector; and
  • a KYC pack is kept ready and updated at all times.

Other additional protections that a charity could use include ensuring that the contact at the bank is familiar with charities and their most common structures. However, more often than not, there is never a ‘catch all’ solution to the issues raised above. In a situation where a charity is concerned, the trustees should reach out to the person in charge of their relationship at the bank to voice these concerns and discuss potential solutions.

Charities borrowing money and granting security

As mentioned previously, a charity must ensure that it has the power to borrow money and, if it is a requirement of the bank, to grant security over its assets. The power (and restrictions) will be contained in a combination of the charity’s governing document, and statute and case law.

If security is to be granted, the charity will need to consider whether it is in the best interests of the charity, and if it will further the specific purposes of the charity to grant such security.

Furthermore, if land is to be charged, it will be necessary to consider whether the restrictions in the Charity Act 2011 apply to them (hint – more often than not they will). In this context, the statutory rules say that, where a charity is not exempt, the charity will need an order from the Charity Commission and will need to take advice on the mortgage. This is to protect the charity from the trustees making ‘bad’ decisions.

The rules on this are being amended slightly by the Charities Act 2022. The trustees should be aware of both the existing and new rules here and abide by them at all times, as the Charity Commission has published guidance on borrowing and mortgaging land. The new rules on disposal of property and charging have extended the list of professions that charities can obtain advice from, and now allows charities to obtain advice from a list of ‘designated advisors’.

Trustees of an unincorporated charity should be aware that they are personally, jointly, and severally liable for the repayment of the loan and other linked liabilities. The indemnity the trustees receive from the charity is important protection here, but trustees should remember that where the liabilities exceed the charity’s assets, they will be left with the shortfall.


There are many opportunities available to charities in the finance sector and, although this article focuses on some of the struggles and pitfalls, many charities can have very long and productive relationships with their bankers. Those relationships are borne out of working with the bank and being open and transparent in relation to both the structure and their aims.

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