Charity Sector Banking: De-Risking, Access, and the Regulatory Response

The de-risking crisis that has affected charities and non-governmental organisations seeking banking services represents one of the clearest examples of a compliance framework producing outcomes that are directly contrary to its stated objectives. Banks, responding rationally to perceived AML and sanctions risk in the charity sector, have withdrawn banking services from thousands of legitimate organisations — disrupting humanitarian programmes, impeding development work, and, in some cases, forcing charities to rely on informal money transfer channels that carry substantially more financial crime risk than the formal banking system they have been excluded from. The gap between regulatory intent and operational reality in this area has never been wider.

Why Banks De-Risk the Charity Sector

The banks' risk calculus in the charity sector is not irrational, even if the outcomes are. Several features of charity operations create genuine compliance complexity. Cross-border payments to high-risk jurisdictions — including conflict zones, sanctioned countries, and FATF-greylisted states — are operationally core to humanitarian charities but trigger enhanced due diligence and monitoring obligations that are costly and difficult to execute. The beneficial ownership structure of charities — where donors, trustees, and beneficiaries may be geographically dispersed, and where the "beneficial owner" concept maps imperfectly onto charitable governance — creates CDD challenges. Cash-based programme delivery in jurisdictions with limited banking infrastructure creates audit trail gaps. And the perceived enforcement risk of being associated with funds that eventually reach sanctioned territories — even where an OFSI licence or OFAC General Licence is in place — acts as a powerful deterrent to charitable banking.

The result has been a pattern of wholesale de-risking: banks withdrawing not from high-risk charities identified through individual risk assessments, but from the sector as a whole, or from categories such as "charities operating in the Middle East" or "Muslim charities" — a proxy discrimination approach that lacks proportionality and, in some cases, raises equality law concerns.

FATF's Position: Proportionality Over Over-Compliance

FATF has been explicit in its guidance on the non-profit sector that blanket de-risking is inconsistent with the risk-based approach. FATF Recommendation 8 concerns non-profit organisations (NPOs) and its associated Interpretive Note was significantly revised in 2016 and again in 2023. The current version explicitly states that not all NPOs are high-risk and that the appropriate response to NPO risk is individual risk assessment, not sector-wide exclusion. FATF's Best Practices Paper on combating the abuse of NPOs (2023) specifically identifies "over-application of AML/CFT measures to the NPO sector" as a counter-productive outcome that harms legitimate activity and may push financing to less transparent channels.

The revised Recommendation 8 also removed language that had previously been interpreted as treating NPOs as inherently high-risk, replacing it with a framework that requires jurisdictions to identify those NPOs that are at genuine risk of terrorist financing abuse and to apply proportionate measures to that subset.

The NCVO Campaign and UK Policy Response

In the UK, the National Council for Voluntary Organisations (NCVO) and the Charity Finance Group have been the primary voices documenting and campaigning against the banking access problem. Their surveys have consistently shown that a significant proportion of charities — particularly smaller charities, those with international operations, and those working in conflict-affected regions — have experienced account closures, refusals of service, or severe restrictions on payment capabilities from UK banks.

The UK government's response has included: guidance from the Treasury and FCA clarifying that banks are not required to refuse all charity customers that present AML complexity; FCA engagement with individual banks on disproportionate de-risking practices; and, in 2024, a joint statement from the FCA, Treasury, Charity Commission, and banking industry acknowledging the problem and committing to a practical framework for improving charity banking access. The FCA's Financial Crime Guide has been updated to include examples of disproportionate de-risking in the charity sector as a practice the FCA does not endorse.

What Banks Can Legitimately Do

The FCA's position is that banks may decline or exit charity customers where a genuine individual risk assessment identifies risks that cannot be managed within the firm's risk appetite — but that this decision must be based on specific, documented risk factors attributable to the individual charity, not on sector-wide assumptions. Where a bank is declining a charity for reasons related to geographic exposure, it should consider whether OFSI licensing (for UK sanctions) or other mitigating factors reduce the risk to manageable levels. Banks should be able to explain to a declined charity the basis for the decision to the extent possible without breaching tipping-off or SAR confidentiality obligations.

Alternative Solutions for Charities

In practice, many charities have turned to specialist payment institutions and fintech providers who are willing to provide payment services where mainstream banks are not. These providers typically apply rigorous individual risk assessments rather than sector-wide exclusions, and in some cases are better equipped to manage international payment corridors that mainstream UK banks find operationally complex. Payment institutions cannot provide all the services of a full banking relationship — they cannot offer credit facilities, and deposit protection does not apply — but for operational payment needs, they offer a viable alternative that many charities have found more accessible and more responsive than traditional banking channels.