Charities

FSCS protection for deposits made by charities

FSCS protects eligible deposits with banks, building societies and credit unions that are authorised by the Prudential Regulation Authority (PRA) up to £85,000 per authorised institution. This means that how a charity spreads its money can affect the amount of compensation the charity is entitled to.

It’s important to be aware that some banks and building societies could be part of the same banking group and so share a banking licence. This is important as FSCS protection is £85,000 per person per banking licence. More information can be found here. To check whether an authorised deposit taker is part of a banking group you can use our protection checker tool.

A charity’s eligibility for FSCS protection

The PRA Rulebook sets out the eligibility rules for FSCS depositor protection.  It explains which deposits are not eligible - this includes financial services firms, public bodies that are not ‘small’, and depositors found guilty of money laundering. The Rulebook does not specifically mention charities. The charitable status of the charity is not a relevant factor to determining eligibility. Rather, the eligibility of a charity’s deposit being protected by the FSCS is determined by the charity’s underlying nature and legal structure. This will be set out in the charity’s governing documents.

In England and Wales there are four main types of underlying legal structures:  

1. a charitable incorporated organisation (CIO)
2. a charitable company (limited by guarantee) i.e. a limited company
3. an unincorporated association (UA) (e.g. a club)

FSCS would generally treat deposits of the types above as the claimant and would apply the eligibility criteria to them directly. All the charity’s accounts held with the failed bank or banking group would be aggregated and protected up to £85,000 in total.

4. a trust

How FSCS treats a depositor that is a trust would depend on the type of trust arrangement in each case.

Funds held under a bare trust

Under the Depositor Protection rules, there are circumstances where the FSCS can ‘look through’ a named account holder to regard each ‘absolutely entitled’ beneficiary as a separate claimant.

A beneficiary of a trust is only ever ‘absolutely entitled’ to funds held under a bare trust.

Each eligible beneficiary is entitled to FSCS protection of up to £85,000 in total. All deposits to which the beneficiary is entitled (held with the same bank or another bank in the same banking group) whether directly or as a beneficiary under a trust would be aggregated.

Example:

• Beneficiary A is absolutely entitled to £50,000 which Charitable Trust 1 deposited with Bank Z
• Beneficiary A also has a personal account to the value of £40,000 deposited with Bank Y
• Bank Z, and Y are both authorised by the PRA but share the same banking licence so are part of the same banking group

Even though Beneficiary A is absolutely entitled to £90,000, the total amount protected by the FSCS is £85,000. Both deposits are aggregated as they have been made with banks that are part of the same banking group.

Funds held under a non-bare trust

Funds may be held under a non-bare trust, such as a discretionary trust or charitable purpose trust. The beneficiaries of a non-bare trust are not ‘absolutely entitled’ to the funds held on trust.

The FSCS would usually consider the Trust itself as the claimant.

FSCS protection of £85,000 is applied to the Trust per authorised institution. All the Trust’s accounts (held with the same bank or another bank in the same banking group) are aggregated and the total amount protected is £85,000. This is regardless of the number of beneficiaries under the Trust. Trustees have a separate claim for each separate trust that they are a trustee of.

Legal Structure	Who the FSCS generally considers as claimant	FSCS compensation limit
CIO/ Charitable Company/ UA	CIO/ Charitable Company/ UA	£85,000 applied to the CIO/ Charitable Company/ UA across all accounts with the same bank or banks within the same banking group
Trust	If funds are held under bare trust = the Beneficiary	Where funds are held on a bare trust: £85,000 is applied to each eligible beneficiary entitled to the funds under the bare trust arrangement. Accounts to which the beneficiary is entitled to that are held with the same bank or a bank that is part of the same banking group are aggregated and the total amount protected is up to £85,000
	If funds are held under a non-bare trust = the Trust	If funds are held under non-bare trust: £85,000 is applied to the Trust per authorised institution. The Trust’s accounts that are held with the same bank or another in the same banking group are aggregated. The total amount to which the Trust is protected is up to £85,000. Trustees have a separate claim for each separate trust that they are a trustee of.

 

Please note that pension trustees are an exception to the general Trust rules as set out above and are treated differently depending on the type of pension.

Note
This page does not constitute legal advice but seeks to provide general information only.

The FSCS is unable to confirm eligibility of specific deposits prior to the point that the deposit taker holding the funds fails. For confirmation, contact the deposit taker holding the funds, or seek legal advice.