4. Policy developments

4. Policy developments

De-risking

Over recent years banks have been withdrawing banking facilities from customers in greater volumes than before. There is a perception that this is driven by banks’ concerns about the money laundering and terrorist financing risks posed by certain types of customer. This is known as ‘de-risking’.

In July 2015 we appointed consultants to research the nature and scale of de-risking in the UK. We wanted to understand what banks were doing and why, and to hear experiences from groups affected by banks’ decisions. We published the consultants’ report in May 2016, together with our response.

Overall the report found that banks appeared to weigh up a range of benefits and costs of maintaining accounts that were not always, or necessarily, related to any financial crime risks the customer might pose. These included credit risk, as well as broader considerations driven by strategic business decisions, increased capital requirements or overall compliance costs. While the impact of de-risking on individuals or businesses, especially smaller businesses, could be acute, the numbers of de-risking decisions were small in comparison to the total numbers of accounts the banks closed, which the consultants found to run to millions for personal accounts and hundreds of thousands for businesses.

Nevertheless, the closure of an account can create significant stress and inconvenience for the customer who must make other arrangements or change the way they do business. This is compounded when, as the consultants found in many cases, banks fail to communicate well with customers when closing an account or rejecting an account application.

The FCA is tasked with ensuring an appropriate degree of consumer protection and promoting effective competition, while at the same time protecting and enhancing the integrity of the UK’s financial system. As part of that integrity objective, we are charged with supervising banks’ compliance with money laundering legislation and regulations.

At the same time, banks must retain flexibility in deciding how they comply with their legal obligations as well as when making commercial decisions on whether to provide banking facilities that are consistent with their tolerance of risk. We believe we can work with the banking industry to lessen the damaging effects of de-risking without constraining banks’ essential commercial freedom.

So we are doing further work looking at:

  • Improving the way in which firms identify money laundering risk to make sure that banks are focusing on those customers who present the highest risk of money laundering or terrorist financing.
  • Fostering innovation and reducing cost in AML compliance – working with the Treasury and the Joint Money Laundering Steering Group to ensure that the Fourth EU Anti-Money Laundering Directive is transposed into UK law in a way that allows the use of digital identification. We are already taking innovative approaches in some areas, such as the authorisation of a challenger bank all of whose processes, including those needed for their AML controls, are entirely app-based. We will also do further work to research and promote innovations in technology which improve, speed up and reduce the cost of AML compliance.
  • A global response to de-risking – working with international bodies such as the Financial Action Task Force (FATF) and the Financial Stability Board to ensure regulatory expectations on AML are made more consistent globally.
  • How banks communicate with their customers – hosting roundtable discussions with banks to encourage better communication with customers when exiting or rejecting banking relationships, and to see what more can be done to help customers in this situation.
  • Improving effectiveness of AML supervision – working with the Government and other UK AML supervisors on how AML supervision across all regulated sectors can be made more consistent and effective.