De-banking and Muslim charities: when financial services are withdrawn without explanation

Imagine logging in to pay your staff or send emergency relief, only to find the account frozen — or a letter saying it will close in two months, with no reason given, no named cause, and no meaningful way to appeal. For a growing number of Muslim faith-based charities in the UK, this is not a hypothetical. It is a recurring reality that has left hospitals unable to pay doctors and vital treatment for sick children delayed for months. This article looks at what is happening, why banks so often say nothing, the risk frameworks driving it, and what charities can do to protect themselves. It is general information, not advice — take professional advice on your own situation.

The scale of the problem

This is not a handful of isolated cases. A 2025 survey by the Muslim Charities Forum found that 68% of Muslim charities reported difficulties opening a bank account, and 42% — more than four in ten — had experienced a complete withdrawal of banking services. Around the same proportion reported transfer delays that held up payments. The report described a pattern of disproportionate financial exclusion, often linked to counter-terrorism and risk frameworks, and concluded that structural Islamophobia plays a role — with Muslim-led charities targeted for perceived risk without concrete evidence of wrongdoing.

The human cost is real. The same reporting documented a charity running a hospital that could not pay its doctors and nurses for two months, and another — supporting Syrian refugee children with cancer — that faced a payment delayed for a year, disrupting the children's care. When a charity's banking is switched off, the people who suffer are the beneficiaries at the very end of the line.

Why won't the bank tell them why?

One of the most distressing features is the silence. Charities are expected to defend themselves without ever being told what they are accused of. There is a legal reason for this, and understanding it helps.

Under the Proceeds of Crime Act 2002 (and equivalent terrorism legislation), if a bank suspects money laundering or terrorist financing it may file a Suspicious Activity Report (SAR) to the National Crime Agency. Critically, it is then a criminal offence to "tip off" the customer — to say or even hint that a report has been made, where doing so might prejudice an investigation. So when an account is frozen or closed in these circumstances, the bank is required to use neutral, non-committal language and cannot explain itself. From the charity's side, this feels exactly like an arbitrary decision with no cause and no route of appeal — because the law obliges the bank to stay silent.

That silence is the heart of the injustice: a suspicion the charity cannot see, cannot answer, and cannot challenge.

De-risking: the incentive to close rather than ask

Behind individual closures sits a bigger dynamic known as de-risking. A bank faces enormous penalties — financial and reputational — if it is found to have handled the proceeds of crime or terrorist financing. It faces far smaller consequences for wrongly closing the account of a perfectly legitimate customer. That asymmetry creates a powerful incentive to exit whole categories of customer deemed "high risk," rather than take the time and cost to assess each one on its merits.

Charities working internationally, sending money to fragile or conflict-affected regions, have long been caught in this net — and Muslim charities, often working in exactly those regions, most of all. For years, global standards made this worse: the Financial Action Task Force's Recommendation 8 once described the non-profit sector as "particularly vulnerable" to terrorist financing, prompting governments and banks to apply disproportionate measures to charities across the board. In November 2023, the FATF amended Recommendation 8 precisely because it had been misapplied — now requiring focused, proportionate and risk-based measures, and warning that blanket treatment of non-profits harms legitimate work and human rights. The international standard-setter, in other words, has acknowledged the problem.

A pre-existing problem, not a new one

"De-banking" entered the national conversation in 2023, when a prominent politician's account was closed by a private bank and the story dominated the headlines. An independent review found that particular decision lawful but poorly handled and communicated; the Financial Conduct Authority's wider review found no evidence that firms were routinely closing accounts over customers' political views, with financial-crime concerns and dormancy the most common reasons. In response, the government moved to strengthen customers' rights — extending the notice period for account closure towards 90 days and requiring banks to give a clear explanation.

But two things are worth noting. First, Muslim charities had been living this reality for years before it became front-page news — with far less outcry. As long ago as 2014, the think tank Claystone reported that Muslim charities were the subject of some 38% of statutory inquiries by the regulator despite making up less than 2% of registered charities — evidence of scrutiny that many in the sector experienced as a "suspect sector" narrative. Second, the new transparency rights carry an exception for cases involving serious financial crime or fraud — which, combined with the tipping-off rules above, is precisely the category most likely to affect the charities in question. The reforms are welcome, but they may not reach those who need them most.

Structural bias, or risk aversion? In practice, both

It is possible to hold two things together. On one hand, sector research points to structural Islamophobia — Muslim organisations, and even individuals whose names resemble those on a watchlist, being treated as risky by default. On the other, much of the harm flows from a system of incentives and opaque risk frameworks that would exclude legitimate charities regardless of intent: automated name-matching, blunt "high-risk jurisdiction" filters, and the safer-to-close calculus described above. These explanations are not in competition. Whatever the mix in any given case, the effect is the same — legitimate charities, doing lawful and often life-saving work, shut out of the financial system with no evidence put to them and no real recourse.

It is also only fair to say that banks are not acting in a vacuum: they carry heavy legal duties, face severe penalties, and are genuinely constrained by the tipping-off rules. The deeper fault lies less with any single institution than with a framework that pushes risk-avoidance onto the most vulnerable end of the chain.

What your charity can do

You cannot control a bank's risk appetite, but you can make your organisation as demonstrably low-risk and well-run as possible — and prepare for trouble before it arrives:

• Get your governance and financial controls visibly robust. Clear policies, a clean audit trail and documented decision-making make you far easier for a bank to say "yes" to (this is the heart of every trustee's financial responsibility).
• Evidence your due diligence, especially on overseas work — know-your-partner and end-use records that show exactly where money goes and why (see sending donations abroad).
• Build a relationship with your bank. A named contact, proactive information, and a clear explanation of your work and controls can pre-empt misunderstanding.
• Don't rely on a single account. Where you can, hold more than one banking relationship so a single closure doesn't stop everything.
• Use the complaints route. Exhaust the bank's internal complaints process, then escalate to the Financial Ombudsman Service; keep records throughout, and make use of the strengthened notice and explanation rights as they take effect.
• Work through sector bodies. Organisations such as the Muslim Charities Forum, NCVO and the Charity Finance Group are advocating on this issue and can offer support, evidence and a collective voice.

None of this is a guarantee — and it should not fall to the victims of a flawed system to fix it. But strong governance and good records are both your best individual protection and part of the sector's collective case for change.

The bottom line

De-banking without explanation is a serious injustice done to legitimate charities carrying out lawful, often life-saving work — and it has fallen hardest on Muslim faith-based organisations. The forces behind it are a mix of documented bias and a risk-averse framework that treats whole categories of charity as guilty until proven innocent, while the law keeps the reasons hidden. The direction of travel — a reformed international standard, stronger customer rights — offers some hope. In the meantime, charities can protect themselves with demonstrably strong governance, meticulous records and more than one banking relationship, while the sector, regulators and banks are pressed to deliver what fairness plainly requires: proportionality, transparency, and a genuine right of appeal.

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This article is general information and reflection, not advice. It describes a contested and developing area; individual circumstances vary, and nothing here should be read as a statement about any particular bank or charity. Banking, anti-money-laundering and counter-terrorism law are complex — take professional and legal advice on your own position. For help making your charity's governance, controls and financial records as robust as they can be, get in touch.

Sources verified (July 2026):

• Muslim Charities Forum — research on banking access and financial inclusion for Muslim charities (2025–26) — https://www.muslimcharitiesforum.org.uk/
• Civil Society Media — Banks told to improve Islamophobia training as Muslim charities report access issues — https://www.civilsociety.co.uk/news/banks-told-to-improve-islamophobia-training-as-muslim-charities-report-access-issues.html
• National Crime Agency — Suspicious Activity Reports (SARs) — https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/suspicious-activity-reports
• FATF — Protecting non-profit organisations through risk-based implementation of revised Recommendation 8 (amended November 2023) — https://www.fatf-gafi.org/en/topics/non-profit-organisations.html
• Financial Conduct Authority — review of account closures / "de-banking" (2023) — https://www.fca.org.uk/news
• Claystone (2014) — Muslim Charities: A Suspect Sector (reported disproportionate statutory scrutiny) — via Third Sector: https://www.thirdsector.co.uk/charity-commission-accused-undue-scrutiny-muslim-charities/governance/article/1660369
• Financial Ombudsman Service — complaints about account closures — https://www.financial-ombudsman.org.uk/