Complex challenge, shared responsibility
Civil society often faces complex challenges with their access to financial services across the world. These challenges affect the three basic stages of the relationship between banks and civil society organisations (CSOs):
- onboarding CSOs as clients (difficulty opening a bank account, extensive and burdensome due diligence);
- transaction monitoring and suspending/freezing accounts and transactions; as well as
- termination (ending of the relationship without prior notice or justification).
This trend of financial institutions terminating or restricting business relationships to avoid rather than manage risk is known as derisking. To learn more about the challenges and their impact on civil society, visit our Learning Center: Access to financial services: the challenge of bank derisking.
Addressing such problems is a shared responsibility between financial institutions and state bodies, and should involve CSOs. Indeed, there are already some existing efforts that show hopeful signs of progress. The good practices identified by ECNL illustrate that addressing immediate challenges related to financial access can be spearheaded by both various financial institutions (e.g., commercial banks, central banks, bank associations) as well as state institutions (e.g., financial intelligence units). But importantly, the good practices also demonstrate that no matter who initiates a certain process, a wider group of concerned stakeholders should be involved to ensure shared solutions and to increase civil society’s access to financial services.
We hope that the list of good practices captured below will continue to expand together with the impact of these actions. Stay tuned for the ever-growing list of good examples of stakeholders working together, and feel free to reach out to us with any questions or to share additional good practices.
Access to financial services for CSOs: country-level solutions
The following good practices illustrate what different financial or state institutions can do in practice to tackle the financial access challenges CSOs face.
What can a commercial bank do?
Commercial banks stand between the banking regulator and state institutions, and CSOs as clients. Despite the need to follow regulation and adjust their risk appetite, they can also take steps that address the issue of derisking.
Dutch bank - ABN AMRO. ABN AMRO has taken progressive steps to ensure access to financial services for CSOs. The first step is that they recognise the problem of derisking as one of the most salient human rights issues. As a result, they put this recognition into practice in the following ways:
- Dedicate resources for staff and processes to ensure CSO can access financial services. First, they established a Client Acceptance Committee, which considers the details of CSO when they are trying to open a bank account to reach a decision on a case-by-case basis, and considers the consequences of the CSOs not getting a bank account. Second, they established a multi-disciplinary team of experts in the field of human rights, CFT/AML (anti-money laundering and countering the financing of terrorism) and relationship managers, which considers follow-up measures when alerted about a CSO being inappropriately derisked.
- Educate and raise awareness of CSO clients, through the first, dedicated CSO portal created together with Dutch CSOs. The portal features information and help for CSOs on CFT/AML regulations and what it means for them, how banks conduct CFT/AML risk assessments; and what measures CSOs might need to put in place to mitigate potential risks.
- Actively engage in country-level dialogue through roundtables. A representative from ABN AMRO is part of two working groups that exist in the Netherlands to find solutions to the challenges arising from derisking. For more information, read below the question on multi-stakeholder dialogue.
What can a bank association do?
Bank associations are established by the banks in a certain country, and usually commercial banks are their members. They can serve as a link between the banking sector, the government and the public. Their aims can vary in different contexts, but in general they seek to advance the role and work of the banking sector. Bank associations have a very important role in taking initial steps to ensure dialogue between CSOs and the banks.
Association of Cyprus Banks. Jointly with Civil Society Advocates (a Cypriot CSO), it co-organised a virtual meeting with almost 20 representatives of different banks to understand the problems CSOs face with banks, and initiate a long-term dialogue and exchange between banks and CSOs.
Macedonian Banking Association. It co-operates with CSO in various ways:
- Coordinates and attends exchange meetings with CSOs and delivers sessions at CSO meetings and trainings.
- Takes part in a country-level working group that includes the central bank, other state institutions and CSOs. For more information, read below the question on multi-stakeholder dialogue.
- Features interviews with CSO representatives on the topic of derisking in their newsletters.
Kosovo Bank Association. It has engaged in multi-stakeholder meetings organised by the CiviKos Platform (largest CSO platform in Kosovo) and the Kosovo Foundation for Civil Society (KCSF), with the support of ECNL. The meetings sought to bring together CSOs and relevant public institutions to discuss the challenges and problems of CSOs in accessing financial services.They built good working relations with CSOs and encourage banks not to request the physical presence of the founders of CSOs and the Board in the process of verifying and updating data in the banks.
What can a bank regulator do?
The bank regulator, which in many cases is the central bank of a country, has a role in creating and enforcing rules for banks. In this capacity, it therefore could support CSOs' access to financial services.
Dutch Bank Regulator. Based on the findings from a detailed study, and pressure both from Dutch CSOs on one hand, and the commercial banks on the other, the Dutch Bank Regulator changed its vision from rules-based to risk-based approach. One of the practical ways in which this change to risk-based approach has been manifested was that the regulator decided to lead a dialogue to prepare specific standards that determine real risks across sectors so that banks’ client due diligence can be targeted accordingly. This was done through a working group (roundtable) including various stakeholders. One of the sectors for which standards are co-drafted is the nonprofit sector.
What can a financial intelligence unit (FIU) do?
According to the FATF Standards, all countries should have established an authority which would function as a FIU. The core function of an FIU is the receipt, analysis and transmitting of reports of suspicions identified and filed by the private sector. The FIUs therefore functions as an intermediary between the private entities, subject to AML/CFT obligations, and law enforcement agencies. FIUs have also additional roles: power to postpone transactions, supervisory functions of the implementation of the AML/CFT obligations by reporting entities, issuance of guidance and provision of training on AML/CFT matters; as well as, given its role as the main player in the AML/CFT field, coordinating national initiatives at policy level.
FIU in Bulgaria. The Financial Intelligence Directorate of the State Agency for National Security partnered with BCNL (a Bulgarian CSO) and other international experts on the topic. This dialogue led to the following results:
- They co-organised a multi-stakeholder seminar (state institutions, financial institutions including banks, and CSOs) for a dialogue on AML/CFT measures and how to ensure that the civil society sector as a whole is not unnecessarily restricted.
- The dialogue with FIU helped establish an informal channel for CSOs to convey information about problems including cases of bank derisking. The FIU can help identify solutions.
- BCNL together with FIU developed a guidance on who is beneficial owner as well as worked on other documents related to implementing the legal requirements by CSOs (e.g., model internal procedures for CSOs on AML/CFT).
How can a multi-stakeholder dialogue on the problem of derisking be organised on the country level?
Financial access to CSOs can be ensured best if everyone takes part in finding solutions to the complex challenges that different stakeholders experience. The two examples below illustrate how diverse stakeholders engage and are willing to work towards a same goal, and reach a shared understanding both on what the problems and the possible solutions are.
The Netherlands. There are two multi-stakeholder working groups (roundtables) that ensure dialogue in the long-run, and also offer solutions and actionable work in the short run.
- Work group led by Dutch Bank Regulator and Dutch Banking Association. The aim is to create and publish a “sector risk baseline” for CSOs, supported by all stakeholders. The group has a session every 2 or 3 weeks. Several stakeholders contribute in the group: Ministry of Finance, 3 biggest banks, bank regulator, Dutch banking associations and several CSOs.
- Work group led by Ministry of Finance, Ministry of Foreign Affairs and Human Security Collective (a Dutch CSO). The aim is a longstanding discussion on financial access to CSOs. This includes issues, such as sanctions, payment service provider, blocking payments, etc. The working group meets every 3-4 months for over 4 years now, with a larger number of stakeholders coming from: Ministry of Finance, Ministry of Foreign Affairs, 3 biggest banks, bank regulator, several large CSOs (Oxfam, Red Cross, ECNL), several smaller CSOs (Partin, WO-Men), representatives of religious organisations and lawyers (on a case-by-case basis).
North Macedonia. Konekt (a Macedonian CSO), other Macedonian CSOs together with the Financial Intelligence Agency, the National Bank of the Republic of North Macedonia and 13 banks members of the Macedonian Banking Association are part of a working group. Together they:
- Review indicators for suspicious transactions in CSOs to make them more effective, and
- Prepare guiding and interpretative materials to ensure standardised approach in banking practices.
What are the starting points for various stakeholders to ensure access to financial services for CSOs?
Despite the complexity of the diverse contexts across countries, financial institutions and CSOs can consider to take the following actions.
What are the areas financial institutions (commercial banks, bank associations and central banks) should increase their knowledge on?
- Nature and operations of CSOs.
- Challenges that CSOs are facing as a consequence of derisking.
- How to design approach for review of CSO clients on case-by-case basis and apply good practices.
- How to prepare an information guide for CSOs (for example, set up a similar webpage as ABN AMRO).
How can CSOs strengthen their responses?
- Investigate the financial institution requirements and prepare the needed information during the onboarding process.
- Understand how the due diligence process works in the banks and how to ensure that you as a CSO address these potential risks that banks consider.
- Provide annual updates to the bank about your work, and immediately inform the bank for potentially for larger changes in operation (new projects in risk countries).
- Make sure to have proper documentation that can support and justify every transaction.
For more guidance, read our short paper on Navigating access to financial services for CSOs.
Why should state institutions facilitate multi-stakeholder dialogue?
- State institutions together with financial institutions (commercial banks, bank associations, the central bank), as well as with meaningful involvement of CSOs and other concerned actors, should organise and lead strategic, cross-sectoral and long-term dialogues on bank derisking. This will help understand the real risks, but also challenges of the civil society sector and ensure support across sectors (financial institutions, CSOs, state institutions).
Other useful resources to consider
- US Department of Treasury: The Treasury adopted its first-ever Derisking Strategy, with potential benefits for the entities most most vulnerable to derisking, who face significant issues accessing financial services as a result of difficulty in cooperating with US banks. The strategy suggests that removing barriers to access to financial services is both a US and international priority, and recommends multi-stakeholder engagement.
- European Banking Authority (EBA): The EBA issued new Guidelines as a response to the European Commission's request following EBA`s Opinion on derisking. The Guidelines seek to challenge unwarranted derisking and safeguard access to financial services to vulnerable customers. They contain a specially dedicated Annex on customers that are CSOs, for which criteria set out in the document should be applied.
This resource was produced under the INSPIRES program, implemented by Internews and the International Center for Not-for-Profit Law (ICNL). It is made possible by the generous support of the American people through the United States Agency for International Development (USAID).
It was produced partially with the financial support of the European Union. Its contents are the sole responsibility of ECNL and do not necessarily reflect the views of the European Union. The “CSO Meter: A Compass to Conducive Environment and CSO Empowerment” project is implemented by the European Center for Not-for-Profit Law Stichting (ECNL) and its partners: Transparency International Anticorruption Center in Armenia; MG Consulting LLC in Azerbaijan; Civil Society Institute in Georgia; Promo-LEX Association in Moldova; and the Ukrainian Center for Independent Political Research (UCIPR).
