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Draft Banking Reform Bill will expose many charities to extra risk

12 October 2012

A new Draft Banking Reform Bill will leave many charities at risk of losing out in the event of a future banking crisis, the Charities Aid Foundation (CAF) says

CAF along with others had called for “preferred creditor” status to be extended to all charities – which would ensure charity deposits have priority alongside retail deposits covered by the Financial Services Compensation Scheme. Such a move would protect charity funds from being downgraded in the event of a bank failure, giving some additional protection – without any extra cost to the taxpayer.

But today’s Draft Banking Reform Bill rejects such a move, although it does indicate that, subject to EU approval, all charities will be offered similar protection to that given to individual bank customers, currently guaranteeing deposits of up to £85,000.

John Low, chief executive of the Charities Aid Foundation, which promotes charitable giving and provides financial services and social finance to not-for-profit organisations, said: “We welcome Treasury plans to extend the compensation scheme to cover all charity funds, insuring deposits up to £85,000. But many charities will be disadvantaged by the Treasury’s prioritisation of other depositors in the event of a bank collapse.

“We are disappointed that the Treasury has not recognised that charities should be treated as preferred creditors. Unlike money deposited by businesses and commercial investors, charity funds are held on trust for public good and should be treated as such. It’s also crucial that charity trustees have clear, reliable and accurate information and advice from the Financial Services Compensation Scheme.

“We will continue to work with colleagues across the charitable sector during the passage of this Bill to press for enhanced protection for charities’ funds.”

 

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