Dialogue needed to stop banks shutting nonprofits’ accounts, says ECNL

There is an urgent need for improved dialogue between financial and public institutions to ensure uninterrupted access to financial services for civil society organisations (CSOs).

And CSOs themselves can take steps to ensure they are not impacted by so-called ‘derisking’ by banks, says a new publication by the European Center for Not-for-Profit Law (ECNL). The publication provides several possible solutions to what it calls the “trend of financial institutions terminating or restricting business relationships to avoid rather than manage risk… known as derisking”.

The new publication says that addressing the problem is “a shared responsibility between financial institutions and state bodies”, but that this process should also involve civil society itself, as part of multi-stakeholder dialogue.

ECNL says that there are “already some existing efforts that show hopeful signs of progress” in terms of improved stakeholder relationships, citing initiatives in Bulgaria, Cyprus, Kosovo, Macedonia and the Netherlands. It gives examples of how this works in action, such as stakeholder seminars, working groups, meetings and newsletter content.

In particular, ECNL says that financial services providers must dedicate more resources to understanding the needs of CSOs, as well as communicating better with CSO clients about their approach to risk. It gives ABN AMRO in the Netherlands as a good example of providing the sector with relevant information on this topic, through a page on its website.

The publication also notes that the Dutch Bank Regulator last year “changed its vision from rules-based to risk-based”, following pressure from both CSOs and banks, and suggests that other regulators could consider similar reforms.

CSO measures

The publication suggests that, to ensure unimpeded access to financial services, CSOs need to investigate the financial institution’s requirements and due diligence process and prepare relevant information when they first start using its services.

In addition, CSOs should provide annual updates to the bank about their work, as well as immediate notifications of larger changes in operations, such as new projects in risky countries.

They also must make sure to have proper documentation to “support and justify” every transaction, ECNL says.

A previous ECNL resource provided a more comprehensive guide for CSOs on understanding financial institutions’ attitudes to risk.

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