6. Glossary

Abnormal activity generally refers to incoming or outgoing transactions that are unusual or unexpected compared to an account’s regular activity. This may indicate fraudulent or illegal activity to the bank. Examples include large or unusual transactions (for example to a country previously not dealt with), or patterns of activity that are inconsistent with the account’s usual behaviour or are not in line with the stated purpose of the organisation or information provided.

An expert on a particular matter appointed and often paid by the organisation to provide specialist advice, for example an accountant, lawyer, consultant, surveyor and in some cases authorised to act on behalf of the charity and its trustees.

Anti-Money Laundering (AML) legislation refers to a set of laws, regulations, and guidelines designed to prevent the use of financial systems for the purposes of money laundering and terrorist financing. Money laundering is the process of turning the proceeds of crime into property or money that can be accessed legitimately.

AML measures require financial institutions and other regulated entities to implement internal controls, policies, and procedures to detect and report any suspicious activities related to money laundering or terrorism financing. These measures include customer due diligence, monitoring of transactions, and reporting of suspicious activity to relevant authorities. The aim of AML legislation is to ensure the integrity of financial systems, protect against financial crime, and maintain the stability of the financial system.

The term “beneficial owner” is challenging in the voluntary sector, where organisations are not owned in the same way as a commercial entity, nor do they operate in the same manner. These terms are part of Customer Due Diligence (CDD) or Know Your Customer (KYC) measures that are vital in the fight against financial crime. Banks serving voluntary organisations need to ensure their dealings are with bona fide individuals and organisations that do not pose a money laundering risk.

In this context “beneficial owner” does not have its traditional legal meaning. Banks must ensure that they have a fundamental understanding of the structure, management and control of any entity or organisation they do business with. Banks do this by identifying the people involved with the organisation, such as those running the organisation or in a position of control, such as a trustee, treasurer or similar.

Beneficial owners are normally individuals who ultimately (directly and indirectly) own, manage, or control the organisation, or the individuals upon whose behalf the organisation is conducting business.

For the purposes of meeting the bank’s KYC requirements, if your organisation has a trustee, chairman, secretary or treasurer, they will likely be the beneficial owners as they have decision-making authority for your organisation’s activities. If you are unsure, speak to your bank as they can explain the term and its concept to you.

Your bank may use the term beneficiary or recipient for the person you are paying money to, also known as the recipient. This can be confusing as it has a different meaning to the way in which charity law and regulation define it, so please be aware of the context in which it is used.

In the voluntary sector, a beneficiary is a person or group of people who benefit from the charitable activities or services provided by a charity or voluntary organisation. The beneficiaries may be individuals, families, communities, or other organisations, and they are typically identified by the charity or organisation’s mission or purpose.

A company without share capital whose members agree to pay a (usually token) contribution to the company’s debts in the event of it being wound up when insolvent (their guarantee), which has wholly charitable purposes and which is dually registered at Companies House (as a company) and the applicable charity regulator (as a charity) and is subject to both company and charity law.

In England and Wales and Northern Ireland, the purpose of the organisation must be exclusively charitable, and the trustees must carry out its charity’s purposes for public benefit. They must also be subject to the jurisdiction of the respective court (for more information please see England & Wales and Northern Ireland). Any charity registered with the Charity Commission will meet this definition.

In Scotland, charitable status refers to the legal recognition of an organisation as a charity by the Scottish Charity Regulator (OSCR) for Scotland and its entry in the Scottish Charity Register.

An organisation with no need for members, unlikely to employ many staff and wants a simple structure to allow a small number of people to manage money or property for a charitable purpose. All charities hold their assets intrust i.e. charities have a duty to use the assets only for charitable purposes; but only some charities are set up with the legal form of a trust.

A trust is created when money or property of any sort is given by a settlor or donor to a trustee to be held on behalf of an identifiable beneficiary or for a charitable purpose. Whilst a trust can come into being as soon as money or property is given in this way, most trusts are formally created through a will or a trust deed or declaration.

Charity registration in the UK is the process by which an organisation applies to and is registered by the relevant charity regulator (Charity Commission for England and Wales, Scottish Charity Regulator (OSCR) for Scotland, or Charity Commission for Northern Ireland) to be recognised as a registered charity.

To register as a charity in England & Wales and Northern Ireland, an organisation must meet certain legal requirements, including having a clear charitable purpose that benefits the public, having a board of trustees responsible for the organisation's management and decision-making, and operating in accordance with certain legal and ethical standards.

In Scotland, an organisation must meet the ‘charity test’ as defined in the Charities and Trustee Investment (Scotland) Act 2005.

The people who share ultimate responsibility for the general control, governing and management of the administration of a charity. It is usually a voluntary role. Trustees must comply with their trustee duties and legal responsibilities which are set out in the Commission Guidance for England and Wales, OSCR’s guidance for Scotland and the Charity Commission Guidance for Northern Ireland.

Sometimes referred to as Trustees, these are the people who are appointed or elected to represent and make decisions on behalf of a voluntary organisation, either with overall responsibility for the organisation or for specific activities, for example a finance, risk or event committee or another sub-committee. Each committee usually has a Terms of Reference outlining its remit and powers from the main organisation's governance documents.

A CIC is a type of company designed for social enterprises where there is a wish to use their profits and assets for the public good. CICs were introduced by the Companies Act 2004 . Note you cannot register a CIC as a charity in the UK.

A type of governing document used by voluntary organisations of certain legal forms that have a membership, particularly unincorporated associations, charitable incorporated organisations (CIO) and, in Scotland, Scottish charitable incorporated organisations (SCIO). In small, informally run organisations such as clubs and self-help groups, the constitution may be known simply as the ‘rules’. In effect, a constitution acts as a contract between the members.

Registered charities are set up for wholly charitable purposes and are non-profit making; any surplus they make must only be used to further the organisation’s purposes. All charities must operate within the constraints of charity law. They have to obey a number of rules, which include regulations covering trustees, accounts, finances and management.

An organisation with no need for members, unlikely to employ many staff and wants a simple structure to allow a small number of people to manage money or property for a charitable purpose. All charities hold their assets intrust i.e. charities have a duty to use the assets only for charitable purposes; but only some charities are set up with the legal form of a trust.

A trust is created when money or property of any sort is given by a settlor or donor to a trustee to be held on behalf of an identifiable beneficiary or for a charitable purpose. Whilst a trust can come into being as soon as money or property is given in this way, most trusts are formally created through a will or a trust deed or declaration.
 

A type of governing document used to found a charitable trust. Typically a deed sets out who created the trust (the settlor) and for what purpose, who were appointed as the first trustees, how their successors are to be appointed and any directions the settlor wished to give to the trustees about how the trust fund must be used. Sometimes trust deeds are added to by later documents including ‘supplemental deeds’ and ‘deeds of variation.’ Where the terms of a trust have been varied by the decision of a court it may be governed by a ‘scheme’. In some older trusts the deed may take the form of a ‘will’, ‘disposition’ or ‘settlement’.

Banks may refer to your organisation’s income as turnover. Although this term may be unfamiliar in the voluntary sector, the term is commonly used in financial services. This is an estimation of how much money your organisation has received or expects to receive over the next 12 months.

You will have to provide an estimated figure, which could be based on your previous year’s turnover (if this applies), your organisation’s plan for the coming year (if you have one), or your realistic estimate. If you are aware of an upcoming, perhaps unusual transaction, then do let your bank know if possible.

Defined as a Company Director and is used for a person legally responsible for running a company, such as a company limited by shares, a company limited by guarantee or Community Interest Company (CIC).

Some charities in England and Wales are ‘excepted’ from charity registration. They don’t have to register or submit annual returns to the Charity Commission. Apart from that, the Commission regulates them just like registered charities. Most exceptions are permanent.

Typically, the following are considered excepted if they are one of the below, however each group has criteria which, if met, requires them to register with the relevant regulator.

• Churches and chapels belonging to some Christian denominations
• Charities that provide premises for some types of schools
• Scout and guide groups
• Charitable service funds of the armed forces
• Student unions.
• It is recommended you review the guidance for further information.

This status does not currently exist in Northern Ireland or Scotland.

An exempt charity has charitable status and is required to comply with charity law, but unlike other charities it:

• cannot register with the Charity Commission.
• is not directly regulated by the Commission and instead has (or will have) a principal regulator.
• may only be investigated by the Commission as part of a statutory inquiry at the request of its principal regulator.

This status does not currently exist in Northern Ireland or Scotland.

The internal rules and procedures of a voluntary organisation setting out how it will manage and control its finances. Protocols typically make provision for keeping financial records, preparing budgets, monitoring financial performance, preparing accounts or financial reports and authorising individuals to make financial transactions within agreed limits.

A general term which describes the various types of documents by which a voluntary organisation is established, depending upon its legal form. Typically, governing documents contain a statement of the purposes of the voluntary organisation, whether it is a registered charity, a description of how it is structured, rules about how and by whom it is governed, and (where applicable) about its membership.

Banks may refer to your organisation’s income as turnover. Although this term may be unfamiliar in the voluntary sector, the term is commonly used in financial services. This is an estimation of how much money your organisation has received or expects to receive over the next 12 months.

You will have to provide an estimated figure, which could be based on your previous year’s turnover (if this applies), your organisation’s plan for the coming year (if you have one), or your realistic estimate. If you are aware of an upcoming, perhaps unusual transaction, then do let your bank know ahead of time.

A description of the legal forms of voluntary organisations that are legal persons in their own right, existing independently of their members and trustees. This includes companies, community benefit societies, charitable incorporated organisations (CIO) and, in Scotland, Scottish charitable incorporated organisations (SCIO). Because these voluntary organisations have their own ‘legal personality’ they can own property, enter into contracts and take or defend legal action in their own name rather than needing individuals to do so on their behalf.

“Know Your Customer” (KYC) legislation refers to a set of regulations and guidelines that require financial institutions and other regulated entities to verify and identify their customers, whilst assessing the risk of potential money laundering or terrorist financing activities. KYC measures are intended to prevent financial crime by ensuring that financial institutions have a clear understanding of who their customers are, what their business activities are, and the source of their funds.

KYC standards are designed to protect you and help prevent fraud, corruption, money laundering and terrorist financing. KYC involves actions to identify customers, understand the nature of customers’ activities and determine that the source of funds is legitimate. They also assess money laundering risks associated with the customer’s activities. As part of KYC, further due diligence reviews are likely to be conducted throughout the life of the account to ensure your account is being used in the way it was intended.

Banks seek to have dialogue with customers when they have concerns and require information or evidence to confirm that account operation is legitimate. It is important to respond to all bank requests for information in a timely manner, to ensure the account continues to run smoothly.

Trustees of charities should be aware of their legal duties and responsibilities in their management of a charity, once it is set up. You can follow this link to the Charity Commission Compliance toolkit which sets out useful guidance on the due diligence required when running a charity. A lot of the checks you are required to do for any received donations will be mirrored to your chosen bank’s obligations.

A general description of the various types of charities and organisations recognised by the law. Each legal form is regulated by its own laws including statutory legislation, case law and common law, which may differ in each nation of the UK. Within each legal form a variety of organisational structures is possible, such as different types and classes of members, which will be described in the governing document.

There are many different legal structures to choose from. Choosing the right one is important as it will affect how your organisation works in terms of: who will run it, whether it can enter into contracts or employ staff in its own name, and who will be liable for what the organisation does.

Choosing your organisation structure.

A mandate is a document that sets out who is authorised to manage and transact on the voluntary organisation’s bank account. The mandate typically specifies the names of the people who are authorised to operate the account, as well as the limits of their authority. For example, to authorise payment up to a certain amount or 2-to-sign for a payment.

The governing document of a company, including companies limited by shares, companies limited by guarantee and community interest companies (CIC). The Articles set out rules about the company’s membership and its directors including how they are appointed, how they make formal decisions and their rights and responsibilities. When a company is first registered, the Articles are accompanied by a Memorandum of Association, a short document signed by the company’s first members (the ‘subscribers’) confirming that they agree to be formed into a company. The Memorandum is a historic document that cannot be changed but the Articles can be amended by resolution (decision) of the company’s members.

Minutes of the Meeting record the agenda items and decisions of a meeting, and they are sometimes used to confirm that an organisation wishes to open an account with X bank in the name of the organisation. Minutes confirm who an organisation’s key officials are (chairperson / treasurer / secretary), who the signatories of the account will be, and the signing rules for the account. The rules for approving or ratifying the minutes of the meeting may be contained in the governing documents. See here for more information.

A not-for-profit organisation is a broad term for all independent organisations whose purpose is something other than to make private profit for directors, members or shareholders. A not-for-profit organisation is not a legal structure in itself, so the key thing that differentiates it from a charity is whether the organisation is eligible to register as a charity with the Charity Commission.

Officers are individuals who hold key positions in an organisation and are responsible for overseeing its operations, finances, and governance. Here are some of the most common officers: Trustees, Directors, Senior/Committee Member, Chairperson, Treasurer, Secretary.

A “person of significant control” (PSC) refers to an individual, company or other entity who has significant influence or control over a company, such as a community interest company (CIC) or a company limited by guarantee. Not all charities will be affected by the PSC rules. The term is only applicable to companies.

Most PSCs are those who:

• hold more than 25% economic beneficial interest or voting rights in the voluntary organisation
• have the power to appoint or remove the majority of the trustees
• have the power to exercise significant influence or control over the voluntary organisation’s management or policy decisions

Companies House has guidance on persons with significant control and registration requirements: People with significant control (PSCs) - GOV.UK (www.gov.uk). Paragraph 5 of this guidance sets out a table with a useful definition and where you can find the required information.  

These definitions are also defined under the UK's Small Business, Enterprise and Employment Act (2015). For a full definition please refer to the full Money Laundering Regulations 2017. 

In the UK, a Politically Exposed Person (PEP) is an individual who holds or has held a prominent public position, either in the UK or in another country, or who is closely connected to such a person. PEPs are considered to be at higher risk of involvement in bribery, corruption, or money laundering, due to their access to public power and influence. Examples include Members of Parliament (or close family members such as spouse or children) or high-ranking officers in the armed forces. For a wider definition, please see the Money Laundering Regulations 2017.

Registered charities are set up for wholly charitable purposes and are non-profit making; any surplus they make must only be used to further the organisation’s purposes. All charities must operate within the constraints of charity law. They have to obey a number of rules, which include regulations covering trustees, accounts, finances and management.

A number that uniquely identifies a registered charity, as allocated by the relevant regulator at the time of registration.

 Check if you are a registered charity for the E&W, Scotland and NI.

A dedicated relationship manager is a bank account manager who will be your main point of contact at the bank overseeing your account. Some banks will offer a dedicated relationship manager for all accounts. Other banks may only offer one for organisations who meet a turnover threshold. These accounts usually incur fees.

The name given to the type of governing document used by Community Benefit Societies and Co-operative Societies.

A bank signatory is a person who is authorised to sign on behalf of a bank account holder for transactions related to that account. There can be multiple signatories, as set out in the bank mandate, the governing document, or financial protocols.

Bank accounts can be established with signing rules to confirm how many individuals are required to sign for expenditure/payments or other account changes. Normally with one or two individuals to sign, the rules may also define the limits to which each person is responsible. Two to sign requires two separate people to authorise the transaction, which could be through processes employed within the charity itself or within bank online systems.

Source of funds refers to the origin of the funds that a voluntary organisation receives, whether it be from donations, grants, fundraising events, investment income, trading income or other sources of income. It is important for you to have a clear understanding of your source of funds and proof of where your funds have come from. Banks will also need to know where this income will come from – the source of the funds – for example shop sales, donations, legacies, or fundraising events.

The amount of funds which were invested – or you plan to invest – in your organisation. Examples of documentation to evidence this could include financial statements, evidence of gifts or investments, document sale of property or company.

There are varying definitions based on bank and the age of your organisation. Speak to your bank to confirm their definition, however below are some examples:

• The origin of all the money an organisation has accumulated over its lifetime.
• How the initial lodgement of funds was established.
• How a customer or beneficial owner acquired their total wealth.

A description of the legal forms of voluntary organisations that are not legal persons in their own right. In effect they are collections of individual members and/or trustees (‘natural persons’) bound together by the rules set out in their governing document. Because unincorporated voluntary organisations do not have their own legal personality they cannot, in their own name, own property, be a party to contracts and take or defend legal action. Individual members or trustees have to act for and on behalf of the organisation in these respects. This can have important implications for their personal liability. Unincorporated organisations include trusts, associations and informally run clubs, societies and groups.

If you have any doubt around your responsibilities, you should refer to your governing document or take legal advice. Banks do not cover these responsibilities.