Despite perceptions of persecution discussed in Part 1: Do banks really hate churches? Understanding the perception, the real reasons behind churches being de-banked are more likely to be rooted in regulatory and risk management issues.  

Money laundering and finance terrorism will rarely be discussed in church trustee or parochial church council (PCC) meetings. However, they now dominate the mandatory account due diligence processes undertaken by UK banks in the 2020s. While being utterly alien to churches, it is these behind-the-scenes processes which are driving a swathe of the banks’ programme of account closures.   

Let’s explore the primary factors contributing to this friction between a fictional church called Emmanuel Church and their bank.  

The cost of handling physical cash 

Churches like Emmanuel rely heavily on physical cash donations in their weekly collection. The bank recently closed the local loss-making branch the church used to deposit funds. The Treasurer now has to travel further or use an arrangement with the Post Office. The church sees this as an irritation, but for the bank the cost of cash handling is getting higher and higher. 

The bank estimates that maintaining this cash deposit service for its diminishing number of organisational customers costs around £50 per deposit. A small fraction of this cost is passed on to the church in a monthly account fee. But even that ‘imposition’ triggered a church complaint letter.   

Cost escalation is certainly not a reason for the church to be de-banked, but there’s mounting frustration and poor understanding on both sides. 

Lax attitude to regulatory compliance 

Many churches fail to meet regulatory requirements, such as timely filing of accounts and having a reserves policy. Along with approximately 15% of churches (one in seven), Emmanuel rarely file their accounts and annual reports with the Charity Commission by the required deadline.  

The Emmanuel Treasurer sees this filing deadline as a guideline – simply bureaucratic red tape, and there’s no fine or penalty.  But for a bank it’s an immediate red flag on the risk profile of any church approaching them for support – for example for a mortgage.   

Similarly, many churches fail to have a reserves policy. Failure to comply with the basic rules or recommended good practice indicates to a bank that the church is not concerned with regulatory compliance. An attitude that compliance is optional means a higher risk profile, and a higher risk profile means extra monitoring and extra cost for the bank.   

Again, not a reason to be de-banked, but certainly a cause for strain in the relationship. 

Weak financial controls 

Poor financial controls further escalate risks for banks. Churches with inadequate controls are more susceptible to fraud and financial mismanagement. Incidents like phishing scams, misuse of credit cards, and payroll tax fraud expose banks to significant risks. Such issues necessitate increased scrutiny and can lead to account closures if suspicions of fraud or money laundering arise. 

Emmanuel’s Independent Examiner noted that the list of names on the bank mandate and authorised for online banking includes at least three people who are no longer trustees, and only one person is required for a transaction of any value. Someone at a recent Emmanuel Finance Committee meeting joked that the Church Accounts Assistant could be on a beach in Barbados by the time anyone realised that the church’s accounts had been emptied. However, the overt fraud risk wasn’t taken seriously given that ‘she’s a Christian so we trust her’.  

At a basic level, a poor attitude to controls will only cause the bank to raise flags on the church’s account and limit the opportunity for a mortgage. However, if the bank gets a suspicion of inappropriate transactions, payroll tax fraud or other types of fraud or money laundering, then things become a whole lot more serious. The bank will be obliged to raise money laundering concerns internally, and possibly externally with the UK National Crime Agency. This is now not only an expensive account to have, but it’s high risk – and banks hate high risk.  

We have certainly entered de-banking territory.   

Addressing the real issues 

Churches must acknowledge these underlying issues and take steps to improve their financial practices. By enhancing compliance and financial controls, they can reduce the risk profile and foster better relationships with banks. 

In part 3, we’ll explore how focusing on compliance and fostering mutual understanding, both parties can build stronger, trust-based relationships.  

At Kingdom Bank, we work closely with our church and charities partners to provide financial services tailored for Christian ministry. Find out about our savings accounts, mortgages, insurance brokerage, and Property Services. 

If you’re a Christian and would like your savings to help churches grow, then please start saving with us today.