The Nigel Farage’s bank account closure with a bank for the rich has hit a nerve for the Government and the media. The calling of the banking leaders to Downing Street and the resignations of the Group CEO and its subsidiary Banks CEO shows this was no little crisis.
This whole saga as it played out questioned the role of banks in our lives and wider society.
I deal with banking issues regularly for my charity clients, large and small. I have seen many examples, good and bad, so it’s imperative to understand the role each plays to understand the real issues.
The Banks and their role in business and society
Banks are private businesses, set up to make money for their shareholders. They are not politically aligned (we think so). Yes, during the banking crisis of 2008, the Government stepped in and now owns 39% of the NatWest Group – this is rare and did not change the business objectives of the bank.
Banks are subject to stringent anti money laundering and government sanctions regime with hefty fines when it goes wrong. All designed to regulate the banking conduct to the government domestic and international needs hence international events and wars make this a constant changing environment for sanctions. The introduction of the Politically Expose Person (PEP) protocols to stop corruption by people misusing public office adds another dimension to banking responsibility and risk management.
Nigel Farage was picked up by his bank as a PEP but what made the story interesting is that after he made a subject access request, he found that his political views were also considered as a reputation risk for this niche bank and its niche clientele.
“The Nigel Farage story has shaken the very foundations of trust in the wider banking system”.
This has shaken the very foundations of trust in the wider banking system. Given the control banks have on individuals and entities, this very notion that banks consider political views when not obliged by regulations, becomes problematic.
So where do the Muslim charities in the UK fit into all of this?
The impact of 9/11 was a game changer for Muslim charities operating in the West. Muslim charities suddenly found themselves working in high-risk countries subject to sanctions or where sanctioned entities operated. The resulting sanctions regime instantly choked many international charity banking facilities without explanation.
No regard was given to any legal or illegal activity as the “perception” of the “ability” to breach sanctions started to dictate the banks risk management process and de-risking. The Muslim sector became guilty until proven otherwise. The International relief sector already had inherent risks of money laundering, aid diversion and fraud for banks to consider, for the Muslim charity sector, it became just that more challenging to convince banks in this new environment.
“As a result of de-risking of banks, many individuals unfairly paid the price and their associated charities despite having done nothing wrong or illegal”
Another dark side of this additional scrutiny by banks was the spotlight on Trustees. Their social media profile and historical news coverage on the web searches started to become a vital part of the bank’s due diligence. The banks started to de-risk charities based on unfounded risks and perceptions relating to trustees. Many individuals unfairly paid the price and their associated charities despite having done nothing wrong or illegal.
Despite this, the Muslim charities in UK generally responded positively. Charities improved their due diligence processes and vetting of partners and responding to banking queries. Many Muslim charities now use the same due diligence software to vet their partners and staff as the banks.
Despite the pressures since 9/11, the Muslim sector in UK has exponentially grown with talks of annual income reaching £1bn in UK. This could not have been possible without the partnership Muslim charities have with their banks. However, in transferring money abroad charities continue to face blocks and funds returning. In some instances, and surprisingly, banks have been trigger-happy in closing banking facilities without any explanation. Even charities with just UK operations also affected.
So, what should be done, a question I am often asked. My response:
1. Financial Standards must not only be improved, but they should also be exhibited.
The Muslim community bruised by constant unfair and malicious media headlines, at times feels as if the whole world is against them. So, when a bank asks legitimate questions, some wrongly see this as an attack on their faith, creating an “us and them” narrative. This approach risks undermining real issues relating to good governance, compliance systems, proper due diligence, and effective audit trails for “end use of funds”.
“Muslim sector should confidently and boldly market and exhibit the progress made in addressing compliance and governance issues”
Muslim sector should confidently and boldly market and exhibit the progress made in addressing compliance and governance issues. Muslim organisations should sign up to a standard that works for banks and helps to demonstrate good financial governance.
Sometimes the race to raise monies creates pressure to look good before donors with emotional marketing material in the year-end financial statements, ignoring the needs of other key stakeholders like banks.
Muslim charities like all charities should learn from the mainstream charities that practice good governance. Often such charities, in their annual audited financial statements, will discuss their governance or when it fails against their actions plans and risk management extensively. They do this to assure their stakeholders that they understand the risks relevant to them and how they mitigate these risks.
2. Effective or meaningful third-party check or oversight over the banks decision to close an account.
When a charity finds itself with a bank closure notice, it finds limited alternative options for new banking facilities. This has a devastating impact on the vital and often life and dignity saving work charities deliver.
“There is no effective or meaningful third-party check or oversight over the banks decision to close an account”
There is no process to ensure the decision was fair and risk driven. It becomes easy for the banks to close an account instead of spending resources to manage their risks by requesting and assessing relevant information to satisfy themselves.
Charities should lobby the Government and the Charity Commission to address this gap in the system on the back of Nigel Farage’s high-profile case. The banking sector should be subject to detail regulations and guidelines that are shared with the wider public and charities so that all know what is expected of them.
Standard complaints to the Financial Ombudsman Service does not address this issue, given the urgent and devastating impact on bank closures.
3. Covid crisis caused the banks to prioritise businesses over charities.
The Covid crisis placed a significant burden on banks for opening bank accounts for businesses as Government grants were restricted to having a bank account. As it transpired many in their thousands did not. To address this need, mainstream banks prioritised businesses over charities.
“Some high Street banks stopped opening charity bank accounts or gave extraordinary long processing times”
As a result, some high Street banks stopped opening charity bank accounts or gave extraordinary long processing times. Muslim charities were hit the hardest as requirements for that additional bit of scrutiny meant it was no longer commercially viable to entertain them. This is unacceptable as the same banks have been making huge profits.
The Government should make it mandatory on banks to address the requirements of the charity sector as part of their business, so it is not ignored or undermined for commercial reasons- there is no better corporate social responsibility than this for the banks.
Muslim Charities play a vital role in addressing the needs of the most vulnerable, often stepping in when governments fail. This vital service is not possible without the banks facilitating this.
It’s time real issues are discussed and resolved on both sides for betterment of mankind, society, and country. It is in the Government and wider society’s interest to do so and the sector should lobby on this basis.
Nobody wins with the blame game on both sides ignoring the real issues.
Author:
Nasir Rafiq BA, FCA is the Managing Partner of Dua Governance Chartered Accountants, an ICAEW firm specialising in charity financial governance and internal audit.
Nasir works and deals with a large portfolio of Muslim charities in UK and has been advising them with their banking issues, working with many high street banks.
Nasir has directed treasury functions in large UK Muslim charities with operations worldwide.
Email: info@duagovernance.com
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