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Although payment service providers (PSPs) do not abuse de-risking practices, there is room for improvement, Lithuania’s central bank has concluded as it starts 2022 with a new survey on the issue.
With the European and global anti-money laundering and counter-terrorist financing (AML/CTF) requirements becoming ever stricter, many markets are encountering a knock-on effect of these rules — de-risking in financial services.
This happens when financial institutions refuse to provide financial services to riskier groups of consumers, as opposed to managing the AML/CTF risks related to such customers.
Although the survey conducted by the Bank of Lithuania has not shown any significant limitations to access to services for consumers as a result of de-risking, the analysis does conclude that consumers face certain challenges and uncertainties due to the application of AML/CTF requirements.
The Bank of Lithuania has decided to take further steps and has announced a consultation on the matter, with responses being accepted until February 4.
The bank is looking for feedback on the areas that it feels are in need of improvement. It is also asking for opinions on the experience of PSPs related to the filling in or updating of know your customer (KYC) questionnaires, the provision of information requested by PSPs and the application of other AML/CTF requirements by service providers.
A Picture Less Perfect
“Financial institutions should look for ways to properly communicate with customers while implementing the AML/CTF requirements and managing the ML/TF risks,” said Simonas Krėpšta, member of the board of the Bank of Lithuania.
The analysis carried out by the central bank involved the assessment of complaints and inquiries related to AML/CTF received in 2020 and the first half of 2021. PSPs were interviewed about their de-risking policies, while consumers about their experience in the use of these services.
As a result, the Bank of Lithuania has identified several types of challenges faced by consumers when the providers of those services apply AML/CTF measures.
For example, the central bank said that it is not always clear for consumers why payment service providers ask to provide one or another kind of information on the grounds of AML/CTF, as well as why they sometimes fail to clearly specify the scope of information requested or why they keep little contact with consumers.
“Payment transactions are often simply suspended in order to ask for supporting documentation and consumers are not adequately informed about the document evaluation process and its terms,” Krėpšta pointed out.
Lithuania is not alone in wanting to tackle the problem of de-risking.
In March 2021, the European Banking Authority (EBA) published three regulatory instruments to address de-risking practices in the EU, updating its guidelines for tackling money laundering and terrorist financing.
These instruments clarified that compliance with AML/CTF obligations in EU law does not require financial institutions to refuse, or terminate, business relationships with entire categories of customers that they consider to present a higher risk.
In these documents, the EBA further set out actions that competent authorities and financial institutions should take to effectively manage risks associated with individual business relationships.
