A Trend Toward “De-Risking” to Avoid AML/CFT Risk
If leaders at your institution are joining the backlash against risk by simply dumping customers, regions, and types of business, you’re in good company. So much so that Treasury Under-Secretary Adam Szubin dedicated a whole speech to the practice, which he termed “de-risking.”
In a speech on Nov. 16 to the ABA/ABA Money Laundering Enforcement Conference, Szubin described the practice of some financial institutions seeking “to avoid perceived regulatory risk by indiscriminately terminating, restricting, or denying services to broad classes of clients, without case-by-case analysis or consideration of mitigation options.”
Szubin said this approach denies essential financial services to legitimate entities and individuals, and it also pushes people out of the regulated system where transparency requirements and suspicious activity may be tracked. He also emphasized the economic impacts of “preventing countries from accessing the dollar, depressing global trade flows, or straining global development.”
The Solution: A True Risk-based Approach
Szubin went on to detail the Treasury’s research into this trend of de-risking, and he emphasized that a much sounder, more effective, and more widely beneficial response to concerns of high risk is for financial institutions to develop and adhere to a sound risk-based approach.
AML Partners’ CEO Frank Cummings has long subscribed to the essentialness of a risk-based approach, and he emphasizes that it needs to be a true risk-based approach rather than checkbox compliance and disjointed and outdated processes the results of which are jammed in a manila folder.
Cummings has written extensively about the components of a true risk-based approach, and he has transformed the underlying logic of a true risk-based approach into an end-to-end AML software solution that links in one seamless system an institution’s CDD/KYC on-boarding, transaction monitoring, and screening requirements.
“De-risking is not the answer. Rather it’s a sign of the disjointedness and lack of confidence in current AML/CFT Compliance systems,” Cummings said. “It’s a travesty to see whole regions like the Caribbean sometimes written off as too risky when the more logical and more beneficial solution is to commit to the development and use of a true risk-based approach and then to invest in the AML software solutions that support that approach.”
Cummings asserts that for institutions ready to take on that work and to invest in long-term Compliance programs that are both effective and efficient, this is an empowering and exciting time with a clear path to successful AML/CFT. “For those institutions ready to be leaders in risk mitigation, wholesale de-risking is not even a consideration; rather, they focus on a detailed and customized case-by-case assessment of risk,” Cummings said. “And that is good both for their bottom line and for customers who rely on access to the international financial system.”