EBA alerts on the detrimental impact of unwarranted de-risking and ineffective management of money laundering and terrorist financing risks
The European Banking Authority (EBA) published today its Opinion on the scale and impact of de-risking in the EU and the steps competent authorities should take to tackle unwarranted de-risking. 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 taken by financial institutions not to provide services to customers in certain risk categories. De-risking can 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.
To assess the scale and impact of de-risking across the EU and to better understand why institutions decide to de-risk particular categories of customers instead of managing the risks associated with such relationships, the EBA reached out to all relevant competent authorities across the EU, as well as to external stakeholders. The EBA’s findings suggest that de-risking has a detrimental impact on the achievement of EU’s objectives, in particular in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.
The 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, the EBA identified a number of steps competent authorities and the European Commission and co-legislators could take. In particular, the 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. The 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. The EBA is committed to following-up with competent authorities on the actions they have taken to tackle unwarranted de-risking going forward.
Legal basis and background
The EBA’s competence to deliver an Opinion is based on Article 16a(1) and Article 29(1)(a) of Regulation (EU) No 1093/2010, as part of its objective to play an active role in building a common Union supervisory culture and consistent supervisory practices, as well as in ensuring uniform procedures and consistent approaches throughout the Union in relation to financial and credit institutions’ approach to AML/CF risks, in particular to de-risking, under Directive (EU) 2015/849. This Opinion complements the EBA ML/TF risk factors guidelines and the guidelines on risk-based supervision, both of which were revised and published in 2021.
Original communiqué on the EBA’s website: https://www.eba.europa.eu/eba-alerts-detrimental-impact-unwarranted-de-risking-and-ineffective-management-money-laundering-and