De-risking approach to AML Compliance affects immigrants to Europe


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Do AML Compliance efforts in EU cast too broad a net?

The European Banking Authority (EBA) raised concerns last week that efforts to comply with Know Your Customer (KYC Compliance) result in some banks unfairly denying banking services to asylum seekers in the EU.

While the EBA wants financial institutions to practice effective KYC and AML Compliance, they warn against de-risking, an informal term that describes overly broad rejections of accounts and business relationships due to generalized fears of AML or terror financing risk. (For more on de-risking examples, see this article on derisking in the Caribbean.)

A Reuters report on the EBA concerns emphasized the impact on asylum seekers and non-profit organizations, two groups especially affected, according to the EBA.

Money laundering scandals at major banks in Europe in recent years have financial institutions on alert to avoiding problematic customers who might fit some of the general risk factors for money laundering and terror financing. But part of the expectation of high-quality KYC and AML Compliance is to use a risk-based approach rather than wholesale labeling based on overly broad risk concerns.

In a statement on the matter, the EBA warned that de-risking “has a detrimental impact on the achievement of the EU’s objectives, in particular in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.”

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