* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Bankers complain of over-regulation even as their market manipulation scandals mount. Banks must manage risk better and not exit markets serving poor.
Any views expressed in this article are those of the authors and not of the Thomson Reuters Foundation.
Banks continue to complain about over-regulation even as scandals involving market manipulation keep surfacing. A number of banks are cutting down on “risk” by eliminating their participation in whole markets and countries, complaining that there are too many rules, and that they are unfairly treated by regulators.
In the aftermath of the financial crisis, and despite several regulatory reforms, banks have still not managed to regain society’s trust. News that they have begun to abandon some of the poorest markets because they cannot manage corruption risks will not help their cause in the public eye.
Some bankers have acknowledged the sector is in need of a culture change. This includes a restatement of values such as integrity, accountability and transparency. Despite this, regulatory reviews in the UK, show banks still don’t take basic steps to ensure clean business. For example, they fail to meet anti-money laundering regulations, with 75 percent of the banks breaking at least one of the basic rules.
Unfortunately enhanced prosecution of anti-money laundering cases has led to wholesale “de-risking”. This is when entire markets and customer groups stop being served, increasing the number of people excluded from financial services deemed too risky.
Clearly, banks should not be allowed to violate sanctions regimes and do business with corrupt regimes, such as BNP Paribas which took $6 billion from entities linked to the regime in Sudan.
But withdrawing entirely from markets as a measure of risk management is a very poor response by banks to the extra attention they’re receiving from regulators. It results in the denial of financial services to innocent people, and opens up areas of the economy to black market and shadowy banking services. This affects the citizens of countries that are considered to be high risk as well as charities, remittance organisations and providers of humanitarian aid that work in those countries.
Furthermore, it is clearly a misapplication of global anti-money laundering rules. The Financial Action Task Force (FATF), an intergovernmental body which sets the rules, made it clear that banks should only terminate or reject customers on a case-by-case basis when the risk of money laundering and terrorist financing cannot be mitigated. Crucially, banks should make sure that the application of the money laundering rules doesn’t result in poor and vulnerable groups being denied access to vital banking services.
Financial inclusion of poor people, remittances and humanitarian aid are clearly important services financial institutions should provide. It is certainly true that there are borderline cases in which it is difficult, in some cases, extremely so, for banks to make the right call. FATF, national regulators, banks and civil society should work together to find ways of dealing with them. This might require a greater link between law enforcement and banks and investigators. It would also be helpful if businesses and the charity sector improved their reporting and anti-corruption procedures.
Some banks are making positive noises, and have shown willingness to collaborate with governments, regulators and charities to find constructive solutions within the parameters of the current rules For example, U.K. banks have been instrumental in helping to find a way to get humanitarian aid into Syria. This is the right approach, instead of trying to undermine the regulations designed to prevent money laundering.
But while there is some scope for improving regulations and their implementation, the general principle remains: Banks should not be allowed to shy away from a proper risk assessment and risk management approach with regard to customers. Blanket denial of service is not a solution.
((Stuart McWilliam is a senior campaigner on money laundering at Global Witness. Angela McClellan is a senior programme coordinator for G20 issues at Transparency International.))
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