The European Banking Authority (EBA) has published three regulatory instruments to tackle problems with financial institutions’ de-risking practices including customers being left without access to the financial system.

To meet their anti-money laundering and countering terrorist financing (AML/CTF) obligations, financial institutions ‘de-risk’ their business by deciding not to provide services to customers in certain risk categories.

Warning that can leave customers without access to finance, the EBA added: “Customers affected by de-risking may resort to alternative payment channels in the EU and elsewhere to meet their financial needs.

“As a result, transactions may no longer be monitored, making the detection and reporting of suspicious transactions and, ultimately, the prevention of ML/TF more difficult.”

The association also commented: “De-risking can be a legitimate risk management tool in some cases, but it can also be a sign of ineffective ML/TF risk management, with severe consequences.”

In recent years it has become apparent comprehensive action is needed to deal with unwarranted de-risking, given its impact on consumers and competition in the single market, the EBA argues.

So last year it launched public consultations to better understand the issues. The three legal instruments resulted.

“[They] clarify that compliance with anti-money and countering terrorist financing obligations in EU law does not require financial institutions to refuse, or terminate, business relationships with entire categories of customers that they consider to present a higher ML/TF risk,” the EBA said.

The association published its 2021 opinion on ML/TF risks in the EU financial sector and issued revised ML/TF risk factor guidelines.

The documents detail steps financial institutions and competent authorities should take to efficiently manage risks associated with individual business relationships. Risk factors considered include those associated with virtual currency, crowdfunding platforms, Covid-19, products and services from FinTech firms and supervisory divergence.

The third legal instrument is a public consultation on changes to existing guidelines. A public hearing is scheduled for 22 April.

Throughout the remainder of the year, the EBA says it will monitor the scale, impact and reasons for de-risking, and consider the extent to which the current regulatory framework is sufficient to address problems associated with de-risking.

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