By Jacob Ghanty
In July 2015, the FCA commissioned research into the banking phenomenon known as “de-risking”. De-risking refers to banks removing bank accounts and services from customers or other relationships that they perceive as having higher money laundering (ML) risk. There has been a perception that this process is driven by banks’ concerns about ML and terrorist financing (TF) risks posed by certain types of customer, which have been heightened by large regulatory fines imposed on banks, notably in the United States, for failings in anti-money laundering (AML) processes and breaches of sanctions. The FCA recently published the consultants’ report.
There has been much publicity of the effects of de-risking in the money services business (MSB) and money remittance sector. However, the report shows that the issue affects other businesses as well, including pawnbrokers, fintech companies and charities operating in geographical areas where the perceived ML and TF risk is greater. The report concludes that banks take the issue of de-risking seriously and are mindful of their obligations to treat customers fairly and of the financial inclusion agenda. The banks believe that they are attempting to apply the risk-based approach to financial crime in an even-handed and objective way, given inherent uncertainties about how customers will behave and how regulators and courts will view their own position in relation to misconduct in accounts that they hold. Regardless of the drivers of de-risking, the report confirms that there is no “silver bullet” for the issue. It suggests potential solutions may lie in balancing of costs and risks between banks and high risk sectors and a better developed understanding of how to measure ML and TF risk on a case-by-case basis.
The FCA’s response to the report is to admit that de-risking is a complex issue. It warns that banks should not use AML as an excuse for closing accounts when they are closing them for other reasons. The FCA also warns banks of their obligations under competition law when deciding whether to terminate existing relationships or decline new relationships.
Looking to the future, certain legislation may help some sectors affected by de-risking. From 18 September 2016, the Payment Accounts Regulations (SI 2015/2038) (PARs) will require some banks to offer a payment account with basic features to consumers legally resident in the EU. Also, PSD2 needs to be implemented by 12 January 2018, requiring payment institutions to have access to credit institutions’ payment account services on an objective, non-discriminatory and proportionate basis.