EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

Providing access to at least basic financial products and services is a prerequisite for the participation in modern economic and social life and de-risking, when unwarranted, can cause the financial exclusion of legitimate customers. It can also affect competition and financial stability. De-risking refers to decisions of financial institutions not to provide services to customers in certain risk categories. De-risking can not only be a legitimate risk management tool but it can also be a sign of ineffective money laundering (ML) and terrorist financing (TF) risk management, with at times severe consequences. EBA considers that its regulatory guidance on how to manage ML/TF risks, if applied correctly, should help avert unwarranted de-risking. To further complement this guidance, EBA identified a number of steps competent authorities and the European Commission and co-legislators could take:

• EBA encourages competent authorities to engage more actively with institutions that de-risk and with users of financial services that are particularly affected by de-risking, to raise mutual awareness of their respective rights and responsibilities. Where innovative financial solution providers are being de-risked, competent authorities could work with the sector to strengthen institutions’ understanding of those solutions while taking steps to ensure that solution providers that are themselves obliged entities comply with their Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) obligations. EBA encourages competent authorities to remind credit and financial institutions that, if this is warranted by the outcome of their assessment of ML/TF risk associated with a customer, they can opt to offer only basic financial products and services to restrict the ability of users to abuse these products and services for financial crime purposes. 
• EBA also advises the European Commission to clarify, in the Payment Account Directive (PAD), the interaction between AML/CFT requirements and the right to open and use a payment account with basic features and to take advantage of the forthcoming review of the Payment Services Directive (PSD2) to ensure more convergence in the way payment institutions access credit institutions’ payment accounts services.

In the opinion, EBA commits to following up with competent authorities on the steps they have taken to tackle unwarranted de-risking to inform the next EBA Opinion on ML/TF risks under Article 6(5) of the Anti-Money Laundering Directive or AMLD, which is due to be issued in 2023. EBA considers that, to address unwarranted de-risking and promote sound ML/TF risk management, further action by competent authorities and the co-legislators is required to support the effective implementation of provisions in existing EBA instruments and to address provisions that may be conflicting across Level 1 instruments going forward. 

Related Links

• Press Release
• Opinion (PDF)
• EBA Work on AML/CFT

Keywords: Europe, EU, Banking, Credit Risk, AML/CFT, ML/TF Risk, De-risking, Lending, Opinion, EBA