Treasury announces strategy to address financial institution de-risking

Financial Crimes Of Interest to Non-US Persons Risk Management De-Risking Anti-Money Laundering Act of 2020 Anti-Money Laundering Combating the Financing of Terrorism

The U.S. Treasury Department recently released its “first of its kind” strategy to address financial institution de-risking. Mandated by the Anti-Money Laundering Act of 2020, the 2023 De-Risking Strategy examines customer categories most often impacted by de-risking and provides findings and policy recommendations to address ongoing problems. Treasury defines de-risking as financial institutions restricting or terminating business relationships indiscriminately with broad classes of customers rather than analyzing and managing specific risks in a targeted manner. The report found that customers most frequently subject to de-risking are small-to-medium-sized money service businesses (MSB) that are often used by immigrant communities to send remittances abroad. Other commonly impacted customer categories include non-profit organizations operating overseas in high-risk jurisdictions and foreign financial institutions with low correspondent banking transaction volumes. De-risking is particularly acute for entities operating in financial environments characterized by significant money laundering/terrorism financing risks, the report notes. Identifying “profitability as the primary factor in financial institutions’ de-risking decisions,” the report found that profitability is influenced by several factors, including the cost to implement anti-money laundering/countering the finance of terrorism (AML/CFT) compliance measures and systems commensurate with customer risk.

The report presents several recommendations for policymakers, such as promoting consistent supervisory expectations and training federal examiners to consider the effects of de-risking, as well as suggesting that financial institutions analyze account termination notices and notice periods for non-profits and MSBs to identify ways to support longer notice periods where possible. Treasury also encourages heightened international cooperation to strengthen foreign jurisdictions’ AML/CFT regimes, and encourages policymakers to continue assessing the risks and opportunities of innovative and emerging technologies for AML/CFT compliance solutions. Treasury may also consider requiring financial institutions to have “reasonably designed and risk-based AML/CFT programs supervised on a risk basis, possibly taking into consideration the effects of financial inclusion.”