With heightened regulatory scrutiny, financial institutions face new challenges in managing account closures, particularly those involving high-risk or sensitive customers.
Recent executive orders are reshaping expectations, requiring that debanking decisions be based on objective, individualized risk assessments rather than political, religious, or reputational considerations. It’s important for banks to understand the legal and regulatory risks of retaining and understanding governance strategies in documenting and defending their decisions to boards and regulators.
At ABA’s upcoming Financial Crimes Enforcement Conference, a legal expert and bank panelists will address the issue of account closures in a session titled “Open or close? Navigating account closures in a new regulatory era.”
Jim Arndts, BSA officer and head of financial crimes for Regions Bank and one of the session panelists for the conference session, said it’s important for banks to “stick with the facts or stay focused on the transactional activity in question and red flags” when it comes to account closures. Banks either need to focus on the transactions of the case or the risk appetite of their firm, Arndts said.
“Having a documented process and sticking to that documented process is very important in terms of evidencing your decisions,” he explained. “We’ll discuss this more in our session in our session, but if you take one point away, stick to the facts.”
Banks should be engaging with their customers “early and often,” he said.
“We know our space, but do we know the business? What is their strategy? What new products or services are they talking about?” he advised. “If you have a corporate strategy team, what are they talking about? I believe we should be the ‘Yes, but …’ team, not the ‘No’ team. The ‘Yes, but …’ should articulate the controls that would be required to identify and manage new risks. It’s very important to be engaged consistently and early.”
Bottom line for banks: Engagement is critical, according to Arndts, who added that the connection should happen inside banks and outside with peers and other subject matter experts.
“Your network is vital to be able to share ideas, check your sanity and ensure you and your program are up to date on emerging risk and ideas,” he said. “Internal engagement ensures your program is in lockstep with the business, hopefully minimizing any surprises.”
