Lord Forbes of Newcastle
To ask His Majesty’s Government what assessment they have made of the challenges faced by charities in accessing ethical and appropriate banking services; and what steps they are taking to ensure that voluntary organisations can obtain reliable, affordable and compliant banking provision.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Lemos) (Lab)
Charities make vital contributions across the country. While the provision of banking services is ultimately a commercial decision for banks, the Government believe that it is essential that charities and voluntary organisations can access suitable banking services for their needs. The Government have worked closely with UK Finance to support non-profit groups’ access to finance, developing the interactive account finder tool hosted on its website. Smaller charities may also be eligible to use the current account switch service. I should also declare my interest: I was chair of the payments board at UK Finance for several years.
Lord Forbes of Newcastle (Lab)
My Lords, I thank my noble friend for his thoughtful and considered reply. Many charities face slow, complicated and burdensome processes to change registered trustees on their accounts. According to the Charity Commission, a growing number of charities, particularly but not exclusively those that are Muslim-led, are finding themselves debanked altogether. Does my noble friend the Minister accept that current money laundering rules and banks’ risk-avoidance practices are having unintended consequences for charities seeking ethical banking? Will His Majesty’s Government consider issuing clearer regulatory guidance for the banking sector to ensure that civil society organisations are treated proportionately, fairly and indiscriminately?
Lord Lemos (Lab)
I thank my noble friend for that easy, holiday-focused question on the last day of term. I also thank my noble friend Lord Pitt-Watson, who got to the Treasury job too late to take this Question. Mine’s a gin and tonic, David.
We recognise the concerns raised by charities about access to banking services. The UK’s anti-money laundering regime is designed to be risk-based and proportionate, and banks are expected to assess customers on that basis, rather than applying blanket approaches. We continue to engage with the banking sector, regulators and charities to understand these issues, and we will keep under review whether further guidance is needed to support fair and proportionate treatment of civil society organisations.
Just to share my empathy with my noble friend, the Charity Finance Group’s 2024 survey said that 92% of charities had experienced at least one banking difficulty in the previous two years. That number needs to come down.
Baroness McIntosh of Pickering (Con)
My Lords, can the Minister address the issue of access for charities and others in rural areas? Two or three years ago, the Treasury issued a mandate that every resident should live within two or three miles of a bank branch. That has simply not happened. Can he address this as a matter of urgency?
Lord Lemos (Lab)
I understand the point the noble Baroness is making; I live in south Devon, so I recognise the picture. We understand the importance to communities and high streets of access to banking services. The industry has committed to a rollout of 350 banking hubs by the end of this Parliament. Over 275 hubs have been announced so far, and more than 240 are already open. You can get a full list of hubs on the Cash Access UK website. If there is a particular place where there is no access to banking services, you can put in a petition, as it were, and it is obliged to look into it. This is an ongoing area of concern for the Government, and we have launched a review into access to banking services. I will happily talk more about that if noble Lords ask me.
Lord Stirrup (CB)
My Lords, I faced some of the challenges raised by this Question when setting up a charity some 11 or 12 years ago. At the time, questions were asked by others in this place about the difficulties, and the answers given then were remarkably similar to the answer the Minister has just given. Nothing has improved over those 11 or 12 years, so there is clearly something wrong with the system which needs to be addressed as a matter of urgency. Can the Minister pass on to his colleague the requirement to act on this quickly?
Lord Lemos (Lab)
My Treasury officials will kill me for this answer, but I must say that I recognise the picture the noble and gallant Lord has painted. When I came to read the pack for this Question, I had a decided sense of déjà vu. I will pass that question on to my noble friend Lord Pitt-Watson and he will get straight back to the noble and gallant Lord.
Baroness Barker (LD)
My Lords, charities are subject to accountability to a range of regulatory bodies—the Charity Commission, the Fundraising Regulator and HMRC. In view of that, does the Minister agree that it is wrong that banks can unilaterally withdraw banking services and that there is no appeal?
Lord Lemos (Lab)
As the noble Baroness knows, debanking and access to banking services is an issue way beyond charities and it is really important. The Government recognise the importance of that, and that is why they have introduced new rules to require banks to give customers 90 days’ notice before closing accounts and to provide a clear explanation. The Government’s new rules will ensure more transparent and predictable access to banking, while still recognising that it is a commercial decision for a provider as to whom they provide services. But what I would say is that banks are big and rich, most charities are small and poor, and I am on the side of the little guy.
Lord Altrincham (Con)
We thank the noble Lord for standing in for the Minister at the end of term; I do appreciate that. A recent Charity Commission survey found that nearly one in five charities has experienced difficulties in opening a new bank account. This has been repeatedly discussed in your Lordships’ House, including throughout the passage of the current Financial Services and Markets Bill. How will the Government ensure that regulators apply their rules in a proportionate manner, taking account of the constraints under which charities operate that need access to banking services?
Lord Lemos (Lab)
The question of regulation is really important here, so I should set out the position clearly. Charities are protected by the FCA’s consumer duty up to £1 million turnover, and if they want to seek redress from the Financial Ombudsman Service, they can do so if they have turnover of less than £6 million. I would encourage charities, if they are really unhappy with their bank, to use the UK Finance “find a bank” tool—it is not called that, but you know what I mean—and the customer account switching service. The best tonic for poor service is competition.
Baroness Gohir (CB)
My Lords, earlier on, the Minister said that the assessment is risk-based, but a report by the Muslim Charities Forum shows that two-thirds of Muslim charities face banking issues. Are the Government suggesting that Muslim charities pose more of a risk, and why is that?
Lord Lemos (Lab)
No, I do not think that is what we are suggesting. We are suggesting that the banks must act proportionately and in a risk-based way. I think the noble Baroness knows that there are issues, not just in the Muslim community, of which charities must be vigilant, involving financial crime, money laundering and so on. We would not want to stop banks doing that, but of course we would strongly oppose any idea that that targets any specific community.
Viscount Goschen (Con)
Do charities that have a politically exposed person such as a Member of Parliament or, indeed, a Member of your Lordships’ House on the board as a trustee face additional complications in gaining banking services?
Lord Lemos (Lab)
That does not sound right to me. I do not know the answer to that question, but I will make sure my noble friend Lord Pitt-Watson writes to the noble Viscount.
Lord Mohammed of Tinsley (LD)
My Lords, I want to take up the issue of debanking, not just in the charity sector but in independent journalism. I do not know whether the Minister knows about the Canary, an independent journalism outlet that Lloyds Bank has debanked, meaning that it did not have access to substantial amounts of money to pay staff. Does the Minister think that fair and ethical in an open society where we value a free press?
Lord Lemos (Lab)
I am not familiar with that case, but if it is as the noble Lord suggests—and I have no reason to doubt that—that is a serious concern, and I am sure the FCA would want to know more about it.
Lord Cromwell (CB)
My Lords, the Question is about access to ethical banking. We are frequently told during Prayers in this House about the evils of the person who lends money on usury. Can the Minister have a stab at defining ethical banking?
Lord Lemos (Lab)
I could read out a very long answer I have here, but I will not. The heart of the matter in relation to ethical banking goes back to this question of risk-based assessment. I know that a number of the banks that regard themselves as operating ethically would perhaps take a slightly different view on how they manage risk, but also on how they manage compliance. We want to be clear that the security of the banking system is an absolute priority.
I am over time. I wish all noble Lords a very happy summer holiday. I am off to Cornwall, and I will see you in the traffic jam on the A30.