The National Bank of Belgium (NBB) published a circular confirming that the temporary measure allowing the exclusion of central bank exposures from the calculation of the leverage ratio expires on March 31, 2022. The temporary measure had been activated to support the financial system in context of the COVID-19 pandemic. The expiration timeline for this coincides with the time horizon of the Pandemic Emergency Purchase Program (PEPP) of Eurosystem. Additionally, NBB published a circular on prudential expectations on de-risking, noting an increase in the number of de-risking actions, by financial institutions under its remit, for reasons related to combating money laundering and terrorist financing (AML/CFT).
“De-risking” is defined as the decision in principle, taken a priori by a financial institution, to refuse to enter into business relations with potential customers or to terminate existing business relations with current customers. This decision is on the grounds that these potential or existing customers belong to a category of persons that the financial institution alleges is linked to excessive risks of money laundering or terrorist financing (ML/FT), inter alia in view of its risk appetite or the AML/CFT system it has put in place. NBB notes that a significant number of undertakings and professionals from various sectors have been confronted with this phenomenon. While decisions not to enter into or terminate a business relationship, or not to carry out a transaction, may be consistent with the requirements of the Anti-Money Laundering Law, de-risking entire categories of customers without due regard to individual customers’ risk profiles is a sign of ineffective management of money laundering and terrorist financing risks and can have a significant impact.
NBB expects the supervised financial institutions to define and implement balanced AML/CFT policies which, while ensuring effective implementation of the obligations set out in or under the Anti-Money Laundering Law, also enable them to comply with their other legal public-order or mandatory obligations and to fulfill their societal responsibilities. NBB sets out a number of comments and recommendations to financial institutions under its remit to assist them in achieving this balance. These comments and recommendations are related to implications of the overall risk assessment and customer acceptance policy, individual risk assessment, and refusal to enter into a business relationship on grounds related to AML/CFT, updating individual risk assessments and breaking up existing business relationships, the cost of due diligence, and risk of administrative remedial measures, administrative sanctions, and civil or criminal convictions.
Keywords: Europe, Belgium, Banking, Basel, Credit Risk, Regulatory Capital, Covid-19, Leverage Ratio, CRR, De-Risking, AML CFT, ML TF Risk, NBB
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