Diamond dealers amongst traders worst hit by unwarranted AML/CFT de-risking says EBA

Diamond dealers, car traders, hairdressers and coffee shops are amongst businesses worst affected by financial institutions de-risking due to anti-money laundering and counter financing of terrorism (AML/CFT) rules according to a report published by the European Banking Authority (EBA).

The EBA report on de-risking and its impact on access to financial services found that financial institutions err on the cautious side, adversely affecting sectors considered high risk, such as precious stones, in particular diamonds, and cash-intensive businesses, such as money remitters, car traders, hairdressers or coffee shops.

Finance denied

Individuals and businesses operating in the diamond trade who responded to requests for information from the EBA for its report claimed they had been denied access to bank accounts, including savings accounts and business accounts.

Access to other financial products for which access appears to be denied included credit cards, loans and mortgages – for both private and business use – and overdraft facilities.

Higher fees

Several respondents in the diamond trade indicated that high rates and increasing fees had been imposed on them.

They reported that no explanation was provided to explain these decisions, but many claimed the main reason behind these decisions was a wholesale de-risking of the sector, which is associated with high money laundering and terrorist financing risks.

Financial system avoided

As well as being denied opening a bank account, respondents to the report across all sectors – including the voluntary sector – reported difficulties with their existing accounts, such as excessive delays in cash transfers in certain jurisdictions where they are conducting their humanitarian interventions; freezing accounts and in extreme cases, closing accounts and exiting a customer relationship.

To overcome these challenges, the report says businesses and non-profit organisations resorted to a number of ‘workarounds’ that included carrying cash across borders into conflict areas, using personal bank accounts for transferring and receiving funds, or resorting to the services of money transfer businesses.

Wholesale approach

The report found that lenders tended to de-risk by avoiding whole sectors rather than applying a risk-based approach to their activities.

“Unwarranted de-risking is a significant issue across the EU, with a potentially significant adverse impact on the EU financial system’s integrity and stability,” the EBA concluded.

The EBA report on de-risking and its impact on access to financial services can be found here.


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