In a new report, the Treasury Department recommended that the federal government take several steps to mitigate derisking by financial instructions, including possible regulation. The Anti-Money Laundering Act of 2020 required the agency conduct a review of derisking by financial institutions and outline a course of action to address the issue. The report concluded that profitability is the primary consideration for financial institutions when making derisking decisions, although that profitability is influenced by a range of factors, including the cost of implementing AML compliance measures.
Customers facing the greatest derisking challenges include small-to-medium-sized money service businesses, nonprofit organizations operating abroad in high-risk jurisdictions, and foreign financial institutions with low correspondent banking transaction volumes, according to the report. The department presented several possible strategies to address derisking, from training for federal examiners to expanding international cooperation. As for banks, the report recommended analyzing account termination notices and notice periods that banks give nonprofit and money service business customers and identify ways to support longer notice periods where possible. It also raised the possibility of regulation to require financial institutions to have “reasonably designed and risk-based AML/CFT programs supervised on a risk basis, possibly taking into consideration the effects of financial inclusion.”
The report also recommended that the government support efforts by international financial institutions to address derisking; that regulators continue to assess the risks and opportunities of emerging technologies for AML/CFT compliance solutions; and that agencies track and measure aggregate changes in banking relationships with respondent banks, money service businesses and nonprofits.
