This summer, “de-risking” has become a hot topic. De-risking is the term used to describe the process many banks have taken to cancel bank accounts and correspondent banking relationships with customers whom they deem to be too risky, or not worth the cost of ensuring compliance. Losing a bank account relationship can be devastating for small businesses and many emerging payments companies have found it increasingly difficult to obtain banking service due to perceptions that providing banking services for “fintechs,” blockchain companies and other innovative payments companies would be “high risk”.
The concerns about derisking are not limited to its impact on small businesses; it has also impacted on small countries. IMF President Christine LaGarde noted in July 2016 that “regulators in key financial centers need to clarify regulatory expectations …and global banks need to avoid knee-jerk reactions and find sensible ways to reduce their costs.”
It is under this context that reasons for the recent issuance of an unusual “Joint Fact Sheet” by US banking agencies become clear. This appears to be intended to clarify regulatory expectations in order to allay bank concerns, noting:
- The vast majority of BSA/AML compliance deficiencies —approximately 95%—are resolved without the need for an enforcement action.
- The largest penalties for sanctions violations did not involve unintentional mistakes, but intentional evasion of U.S. sanctions for years.
- Banking agencies “do not utilize a zero tolerance philosophy” but instead consider the facts and circumstances when deciding to bring an enforcement action.
Will this help stem the derisking flood? It’s a step in the right direction, but probably does not go far enough. Banks are still expected to have risk-based due diligence policies to manage the risk and must monitor transactions as well. That’s a big job and when it comes to weighing risks and benefits, small companies and small countries may still be on the short end of the stick.