Consultation by the European Bank Authority on de-risking by financial institutions

Currently it is a common practice of Dutch banks to refuse certain groups of companies or organisations, claiming that these groups have a risk profile that is ‘too high’ for the risk appetite of the bank. The clients are not consulted by the bank on the alleged risk profile and in the Netherlands there is no discussion on the harmful practices of banks. Some companies and organisations meet a lot of difficulties to find a bank. This practice of refusing certain clients, that has nothing to do with criminal acts of these (future) clients, is called ‘de-risking’. The theme was already highlighted by MONEYVAL (read this post). I am following it for a time, read these posts.

Now the topic seems to have reached the desks of the European Banking Authority (EBA), the European supervisor of banks. On 15 June 2020 EBA issued a call for “input to understand the scale and drivers of ‘de-risking‘ at EU level and its impact on customers of financial institutions“, read this announcement:

EBA calls for input to understand impact of de-risking on financial institutions and customers
15 June 2020

The European Banking Authority (EBA) issued today a call for input to understand the scale and drivers of ‘de-risking‘ at EU level and its impact on customers. This call, which forms part of the EBA’s work to lead, coordinate and monitor the EU financial sector’s AML/CFT efforts, aims primarily to understand why financial institutions choose to de-risk instead of managing the risks associated with certain sectors or customers. This call for input is of interest to stakeholders across the financial sector and its users, as the EBA wants to hear from all groups affected by de-risking. The call for input runs until 11 September 2020.

To manage customers‘ profiles associated with higher money laundering and terrorist financing (ML/TF) risks, financial institutions may decide not to service a particular customer or category of customers. This is referred to as ‘de-risking‘, and affects both financial institutions and its users. De-risking affects particular sectors and customers across the EU, such as banks engaged in correspondent banking relationships, payment institutions and NGOs.

Given the variety of institutions and customers affected by de-risking and the different degree at which Member States are exposed to this phenomenon, the EBA is reaching out to stakeholders across the financial sector and its users to hear from their experiences.

Responses to this call will inform the EBA 2021 Opinion on ML/TF risks and potentially other policy outputs.

Process
The contributions to the call for input can be submitted by clicking on the “send your comments” button on the EBA’s dedicated webpage. All contributions received will be published, unless requested otherwise. The call for input is open until 6 p.m. CET on 11 September 2020.

Legal Basis
The EBA is mandated under Art. 6(5) of Directive (EU) 2015/849 to develop a biennial Opinion on the risks of money laundering and terrorist financing affecting the Union’s financial sector. The EBA also has a legal mandate to lead, coordinate and monitor the financial sector’s fight against ML/TF across the EU. [For more information, check the factsheet]

Links
Call for input on ‘de-risking’ and its impact on access to financial services
Anti-Money Laundering and Countering the Financing of Terrorism

Hopefully a discussion on the harmful de-risking practices of banks and other institutions is started.

 


Addition 14 August 2020
In an earlier newsletter EBA wrote:

Understanding the scale and impact of de-risking in the EU
De-risking leads to financial exclusion and loss of businesses. It can also contribute to the growth of the informal financial sector and thus reduce transparency. This entails significant ML/TF risks and is why in 2017 and 2019, the Joint Opinions of the European Supervisory Authorities on the risks of ML/TF affecting the EU’s financial sector identified de-risking as posing a significant challenge. Feedback from competent authorities suggests that de-risking continues to be of concern today.

We want to hear from the private sector, not-for profit organisations and consumer organisations how de-risking affects them and their stakeholders. This is why we will shortly be launching a Call for Input. The input received will feed into our 2021 Opinion on ML/TF risks and inform our approach going forward. We will publish the Call for Input on our website shortly.

 

Addition of 14 September 2020
The Dutch banking organisation, Nederlandse Vereniging van Banken (NVB), published an article on its participation in the EBA-consultation, “Witwasonderzoek soms belemmering voor dienstverlening aan bedrijven“, 11 September 2020. In the article it critisizes the practices of supervisors:

De aangescherpte verplichtingen van banken om als poortwachter te waken voor de integriteit van het financiële stelsel vormen soms een belemmering voor dienstverlening aan bedrijven. Dat geldt des te meer voor sectoren die door toezichthouders worden aangemerkt als hoog risico. Dat schrijft de Nederlandse Vereniging van Banken (NVB) in reactie op een uitvraag van de Europese Banken Autoriteit (EBA) naar de invloed van anti-witwasregelgeving op de beschikbaarheid van financiële diensten. 

Naarmate het risico op witwassen groter wordt moeten banken meer informatie uitvragen om zich er van te vergewissen dat klanten hier niet bij betrokken zijn of raken. Wanneer die informatie niet wordt verschaft, of als het niet mogelijk lijkt om maatregelen te nemen om het risico op witwassen voldoende te beperken, mag de bank op basis van de wet geen relatie aangaan of moet zij afscheid nemen van de klant. Banken zetten echter vraagtekens bij het steeds grotere detailniveau van de informatie die toezichthouders vereisen. Daarbij helpt het niet dat toezichthouders geen duidelijkheid verschaffen over het soort ‘bewijs’ dat voldoende is om aan te tonen dat klanten te goede trouw zijn. Dit maakt banken extra voorzichtig.

Banken zijn daarom blij met dit onderzoek van de EBA en hopen dat de uitkomst aanleiding zal zijn voor een open gesprek tussen wetgever, toezichthouders en poortwachters om te kijken hoe we belemmeringen voor bonafide klanten zoveel mogelijk kunnen wegnemen.

Banks apparently do not decide themselves what is ‘high risk’, but follow the decisions of the central banks and EBA. The consultation comments of NVB are to be found here.

Over Ellen Timmer, advocaat ondernemingsrecht @Pellicaan

Verbonden aan Pellicaan Advocaten, http://www.pellicaan.nl/, kantoor Rotterdam, telefoon 088-6272287, fax 088-6272280, e-mail ellen.timmer@pellicaan.nl ||| Weblogs: algemeen: https://ellentimmer.com/ || modernisering ondernemingsrecht: http://flexbv.wordpress.com/ ||| Motto: goede bedoelingen rechtvaardigen geen slechte regels
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