Banks are taking a “blunderbuss approach to de-risking” and using regulation as a “fig leaf” to drop uneconomic clients, the head of the group that coordinates global anti-money laundering efforts has warned.
Roger Wilkins, president of the Financial Action Task Force, told the Financial Times: “This so-called de-risking, it is not so much a function of our standards as a fig leaf for the banks doing what they need to do and are going to do anyway by taking people off their balance sheets.”
His comments reflect growing concern among regulators and politicians about increased risk aversion by banks, which have reacted to a regulatory crackdown and big fines for misconduct by severing links with riskier clients.
The issue is expected to be on the agenda when heads of state and finance ministers meet this week at the G20 summit in Brisbane, Australia.
Banks across the world have been closing the accounts of money transfer companies, Muslim charities, non-governmental organisations, crowdfunding start-ups, digital currency operators, online gambling outfits and foreign embassies.
The Paris-based FATF defines de-risking as “the phenomenon of financial institutions terminating or restricting business relationships with clients to avoid, rather than manage, risk in line with the FATF’s risk-based approach”.
Last month, the body reminded banks to only “terminate customer relationships, on a case-by-case basis, where the money laundering and terrorist financing risks cannot be mitigated” and to avoid “the wholesale cutting loose of entire classes of customer”.
“There is nothing in our standards that requires this blunderbuss approach to de-risking,” said Mr Wilkins. “We expect banks to take a risk-based approach: Do some proper analysis and quantify what the risk is and be more calibrated in terms of what action they take. It is not a zero-based system at all.”
He said some de-risking was called for after some banks were fined for “egregious breaches of the law and requirements in the cases I have seen”. He added: “If you leave a body in the square at lunchtime for people to contemplate it has a positive effect in terms of boards’ and managers’ consciousness of anti-money laundering.”
BNP Paribas, HSBC and Standard Chartered are among the banks that paid big penalties after admitting to breaching anti-money laundering and sanctions rules in recent years.
But Mr Wilkins said banks were overreacting by refusing to do business with entire classes of customer in response to the recent fines. “You wouldn’t close a toll road because there may be a few criminals travelling down it every now and then – but that is what is happening if you take it to extremes.”
He said rising regulatory capital requirements were as much to blame. “A factor in all of this is Basel III and capital requirements – and the attitude of shareholders as well.”
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