The European Banking Authority (EBA) has published three regulatory instruments to address de-risking practices based on evidence gathered in its call for input.
The instruments 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 customer that consider to present a higher ML/TF risk, is claims.
In the documents, it also states what steps financial institutions and competent authorities should make to manage risks associated with individual business relationships.
De-risking is the decision taken by financial institutions not to provide services to those in specific risk categories. This can leave customers without access to the financial system. De-risking can be a legitimate method of risk management but can also be a sign of ineffective money laundering and terrorist financing risk management.
The fist of the three publications is its 2021 Opinion on ML/TF risks in the EU financial sector. In the document, the EBA states de-risking it’s a continuing trend that impacts ML and TF risk, consumer protection and financial stability. It highlights actions competent authorities should take to better understand drivers, scale and impact of de-risking in their sectors.
Secondly, the EBA released a revised version of its ML/TF Risk Factors Guidelines. It now provides guidance on steps financial institutions should take to better manage their ML/TF risks associated with individual business relations.
Finally, the regulator launched a public consultation on amendments to its Guidelines on risk-based AML/CFT supervision. The changes require competent authorities to take stock of the extent of de-risking in their jurisdiction and address de-risking in their ML/TF risk assessments. It also requires competent authorities to pay attention to how financial institution manage ML/TF and encourage improved methods.
The regulator made these changes following a review of its opinion in 2016 to mitigate risks of financial exclusion. It deemed more comprehensive action was needed to address unwarranted de-risking.
During the course of the year, the EBA will monitor the situation and its impact.
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