By Jeff Bater
Nov. 16 — The Treasury Department is investigating the problem of banks severing relationships with a class of customers to avoid regulatory scrutiny, a practice known as “de-risking,” a top official said.
Adam Szubin, U.S. Treasury acting undersecretary for terrorism and financial crimes, said the department takes assertions of de-risking seriously and is working to identify and address the factors that lead U.S. banks to terminate relationships.
De-risking refers to instances in which a bank seeks to avoid perceived regulatory risk by indiscriminately terminating, restricting or denying services to broad classes of clients, without case-by-case analysis or consideration of mitigation options.
“We believe that most risks can and should be managed, not simply avoided altogether,” he said in remarks prepared for a money laundering enforcement conference. “We continue to investigate the scope of the problem. Are some institutions indiscriminately denying access to broad classes of clients due to fears of regulatory enforcement? Is there a market effect that's playing out, where correspondent banking may be consolidating into the hands of a smaller set of banks? Or are we transitioning to a new equilibrium in which U.S. and foreign financial institutions have all strengthened their controls and cross-border relationships are both stable and deep?”
A recent informal poll by the Association of Certified Anti-Money Laundering Specialists (ACAMS) found that 59 percent of the respondents said their institutions “exited a group of customers” over concerns about regulatory scrutiny, even when compliance officers believed they could manage the risks those customers posed (196 BBD, 10/9/15).
Szubin said Treasury has been coordinating closely with the World Bank, the Financial Stability Board, the Financial Action Task Force and the Group of 20 as they conduct surveys of industry on potential de-risking. He said regulators need more data to help measure changes in the correspondent banking environment and to better understand the extent to which de-risking is happening and why.
“I would encourage all governments and financial institutions to continue to participate actively in these studies,” he said. “We need sound, comprehensive data before deciding broad financial and regulatory policy. As we work to gather that data, we do not dismiss concerns about reduced access to the U.S. financial system. Rather, we recognize that reduced access could impede the flow of money for a family member in need or the movement of vital goods.”
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