The non-profit sector faces "de-risking" actions by banks

What is “de-risking”?

Since the Anti-Money Laundering Law[1] has come into force, financial institutions have been obliged to ensure that their services are not abused for money laundering. Because non-compliance with the anti-money laundering legislation is subject to severe sanctions, banks are particularly careful with their customers and engage in "de-risking". "De-risking" means the set of measures and decisions taken by financial institutions to mitigate their risks in terms of money laundering or financing of terrorism. "De-risking" may involve a financial institution taking the decision not to enter into a business relationship with a potential customer or to terminate a business relationship with an existing customer.

In practice, it is it is observed that some financial institutions exclude certain customers, not so much because they would individually pose too great a risk of money laundering or financing of terrorism, but rather because they belong to a category or a sector that the financial institution no longer wishes to have as a client. The problem of unwarranted de-risking actions by banks is recognised by the National Bank of Belgium and by the European Banking Authority.

In addition to diamond traders, the hospitality sector, the construction sector, etc., the non-profit sector is now also being confronted with "de-risking". Several ASBLs, AISBLs and (to a lesser extent) foundations (hereafter 'non-profit organisations') were informed by their bank that the bank relationship will be terminated unilaterally and definitively. In addition, (newly established) non-profit organisations face a lot of difficulties in opening a new bank account. In the field, this leads to major difficulties, because without a bank account, non-profit organisations cannot pay their suppliers and their employees, cannot collect their debts, cannot pay their taxes, ... It needs no further explanation that such a situation can jeopardize the survival of an organisation.

Can a bank just end the banking relation?

Holding a current and/or savings account with a financial institution qualifies as an agreement of indefinite duration. In accordance with general contract law, each party to a contract of indefinite duration has the right to terminate the contract. This means that both the client of the bank and the bank itself can terminate the contract with due observance of a reasonable notice period and with due observance of the agreed terms and conditions. In addition, the Economic Law Code provides that a financial institution can terminate a contract concluded for an indefinite duration, if this is provided for in the contract and subject to a notice period of at least two months.

What can you, as a non-profit organisation, do to (try to) prevent the termination of a banking relation?

Non-profit organisations are required to comply with certain filing and publication obligations. These formalities have multiplied since the introduction of the mandatory registration of the beneficial owners in the UBO register.

Non-profit organisations must, among other things, ensure that the composition of their board and daily management body is published in the Annexes to the Belgian Official Gazette. The directors and persons in charge of daily management must also be registered in the Crossroads Bank for Enterprises ('CBE'). To this end, certain documents must be filed with the clerk’s office of the competent Enterprise court. In principle, the necessary documents must be filed with the clerk’s office within thirty days of the date of the decision. However, compliance with this deadline is often practically impossible, because of the backlog that various clerk’s offices have in dealing with these filings (at the clerk’s office of the French-speaking Enterprise court of Brussels, for example, this backlog has now risen to no less than 12 weeks).

In addition, non-profit organisations must obtain and maintain adequate, accurate and up-to-date information about their ultimate beneficial owners (so-called 'UBOs'). This information must be registered in the UBO register within one month. In the event of a breach of the provisions on the identification and communication of beneficial ownership information, this may result in an administrative fine of 250 to 50,000 euros. In addition, the Code of Companies and Associations imposes a fine of 50 to 5,000 euros for not obtaining and maintaining sufficient, accurate and up-to-date information about beneficial owners in a timely manner.

Because financial institutions attach great importance to compliance with these obligations (non-compliance with these obligations is often cited as one of the reasons for the termination of the banking relation), non-profit organisations do well to closely monitor that all obligations (as far as practically feasible, see above) are complied with in a timely and correct manner. A proactive attitude towards the bank can sometimes also help to avoid problems, e.g. by taking the initiative to communicate a change in the composition of the board or the daily management to the bank and by providing the bank with the necessary documents in relation thereto (identity cards, etc.).

What can you do as a non-profit organisation if the banking relation has been terminated?

Until recently, the answer was: not so much...

Clients of financial institutions had and have the opportunity to contact the ombudsperson of the bank itself, or contact Ombudsfin (an ombuds service for financial services). In the absence of an alternative, some rejected customers tried to prove their case in court.

Already in November 2020, a law was approved introducing a basic banking service for companies[2]. The purpose of this law is to guarantee a basic banking service to companies (including non-profit organisations) established in Belgium. In short, the basic banking service includes a current account with a debit card enabling the company to receive and execute payments. In the application for the basic banking service a company must demonstrate that it was refused by at least three different financial institutions. For reasons that we will not discuss here, it took more than two years before the Royal Decree implementing this law was approved, more specifically until 16 December 2022. The Royal Decree entered into force on 26 January 2023, and the basic banking service is now almost operational. It is expected that the members of the basic banking services chamber will be appointed shortly.

It is absolutely fortunate that companies that are experiencing difficulties in obtaining or maintaining a bank account will soon be able to apply for a basic banking service. However, practice will have to show whether the basic banking service will also effectively bring relief. After all, the basic banking service can still be refused by the financial institution for certain reasons, including a refusal justified by the anti-money laundering legislation...

Over the next few weeks, we will devote a blogpost to the procedure and conditions of the basic banking service.

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If you have any questions regarding this topic, please contact Sarah Verschaeve (sarah.verschaeve@aurionlaw.be), Lisa Bueken (lisa.bueken@aurionlaw.be) or Jan Van Dam (jan.vandam@aurionlaw.be).

[1] Law of 18 September 2017 on the prevention of money laundering and the financing of terrorism and on the restriction of the use of cash.

[2] Law of 8 November 2020 introducing provisions on the basic banking service for companies in Book VII of the Code of Economic Law.