Treasury Offers Policy Recommendations on "De-Risking"

Treasury recommended strategies to prevent de-risking - the "practice of financial institutions terminating or restricting business relationships indiscriminately with broad categories of clients, rather than analyzing and managing the risk of clients in a targeted manner."

In a new study, Treasury made clear that de-risking is not consistent with the risk-based approach that is central to the Bank Secrecy Act’s AML/CFT regulatory framework. Treasury said that de-risking can potentially (i) drive financial activity out of the regulated financial system, (ii) hinder the ability of certain groups to efficiently access the financial system, (iii) delay the unencumbered transfer of funds across borders and (iv) hinder the centrality of the U.S. financial system.

In order to combat de-risking, Treasury recommended that policymakers:

• encourage consistent supervisory expectations;
• review account termination notices and support longer notice periods issued by financial institutions;
• examine potential regulatory measures that would require financial institutions to implement "reasonably designed" AML/CFT programs, in addition to clarifying or updating AML/CFT regulations for money service businesses ("MSBs");
• increase international engagement with other jurisdictions in order to (i) strengthen foreign AML/CFT regimes and (ii) support efforts by international financial institutions;
• evaluate opportunities and risks associated with emerging technologies with regard to AML/CFT compliance solutions;
• modernize the U.S. sanctions regime in order to (i) mitigate unintended economic and humanitarian impacts and (ii) reduce burdensome requirements when providing humanitarian assistance; and
• encourage ongoing public and private sector communication with MSBs, non-profit organizations, federal and state banks and regulators.