Fed, FinCEN, OCC urge banks to avoid de-risking
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), the National Credit Union Administration, and the Office of the Comptroller of the Currency (agencies), issued a joint statement on Wednesday, July 6 on customer relations with banks. and urged customers to conduct due diligence (CDD) to ensure that customers engaged in legitimate activities have access to financial services. In other words, to avoid risk-free practices.
De-risking is a business practice where financial institutions decide to terminate or restrict business relationships with customers, not to manage, avoid money-laundering or terrorism financing risks.
While this detail does not change the legal or regulatory requirements of the existing Bank Secrecy Act/Prevention of Money Laundering (BSA/AML), the agencies have sent a clear message encouraging banks to manage relationships with customers and reduce risk. not for refusing to provide banking services to entire categories. of customers.
The agencies reminded banks that they should apply a risk-based approach to CDDs, including developing the risk profiles of their clients. “The CDD process should enable banks to understand the nature and purpose of customer relationships with the aim of evolving customer profile risk and to continuously monitor them to identify and report suspicious transactions,” the statement said.
But where agencies have placed greater emphasis on the need to analyze on an individual basis, and that “not all clients of a particular type automatically represent an equally high risk of money laundering, or illegal financial activity.” The agencies did not mention which types of customers could be most affected by risk mitigation practices from banks. The joint statement described only what could be seen as the most common cases, including independent automated teller machine (ATM) owners or operators, foreign individuals, charities and non-profit organizations, professional service providers, cash intensive businesses. , non-bank financial institutions and customers. Considers politically exposed individuals.
Interestingly, FinCEN published a statement on June 22 asking banks to clarify how to apply a risk-based approach to holding CDDs for independent ATM owners or operators. “ATM owners and operators have reported difficulty in obtaining and maintaining access to banking services,” the statement said. The statement does not differentiate between fiat or cryptocurrency ATMs, and just as bank regulators are doing with this statement, FinCEN reminded banks that not all ATM owner or operator customers are automatically high-risk.
As agencies are aware that the BSA gives banks discretion around the implementation of a risk-based approach to CDD, agencies fall short of recommending a particular method or suggesting what banks should consider when deciding which. Relevant factors should be noted whether the customer is at high risk. Agencies simply refer to the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money Laundering Examination Manual for further guidance in conducting risk testing.
Read More: FinCEN Praises Automated AML Systems, Digital Identity Solutions
EU regulators also warned about de-risking
De-risking is a global phenomenon, and EU regulators have highlighted this risk in recent reports and public speeches. In January, the European Banking Authority (EBA) published a 40-page report on the issue giving recommendations to the European Commission, the European Union Parliament and the European Union Council on the adoption of new anti-money laundering measures that would address the problem. can reduce. In June, the EBA included AML policies and actions to reduce de-risking and financial exclusion as a priority for 2022.
Also in June, during a debate between EU MPs and EU Commissioner for Financial Services Mairead McGuinness in the EU Parliament, the regulator asked the regulator to look at de-risking practices that occurred in various EU countries and determine the future. It was requested to solve this problem. Legislative proposals such as Payment Services Directive 2 or banking associations.
Read more: EBA Report Includes Crypto, Payments and AML as 2022 Priorities
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