De-risking causes banking losses and fails to reduce AML/CFT risks

Bankers in the Middle East appear agreed that restrictions imposed by global financial institutions on smaller regional and local banks with the aim of reducing risks associated with anti-money laundering and combating financing of terrorism (AML/CFT) are causing significant business losses to regional banks.

So-called de-risking by global financial institutions that are increasingly terminating or restricting correspondent banking relationships is also causing damage to smaller financial institutions in the region.

Detrimental impacts

“Coordinated action among global banks, regulators and regional institutions are required to save the correspondent banking channels and access of regional institutions to global financial markets,” Samantha Pelosi, senior vice-president, payments and innovation, Bankers Association for Finance and Trade (BAFT) told the BAFT Mena Forum earlier this month.

Faisal Lalani, head of institutional and international banking at Emirates NBD Bank added that, “evolving banking regulations have changed banking business in the region with ever increasing cost of compliance while threatening a number of correspondent banking relations.”

General agreement

Meanwhile, an impromptu survey at the forum indicated that 59 per cent of bankers believed that de-risking has not reduced AML/CFT risks while the cost of compliance in correspondent banking business has gone up significantly in the last few years.

This chimes with recent World Bank surveys that have found de-risking is adversely impacting correspondent banking relations of smaller banks, with some regions, including the Middle East, Africa and the Caribbean, more affected than others.

Regulatory bodies, including the UK’s Financial Conduct Authority and the US Department of the Treasury, are concerned that declining correspondent banking relationships may drive payment flows underground and threaten the stability and integrity of the financial system.

Categories: Trade Based Financial crimes News

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