EBA Issues New De-Risking Guidelines, But Payments Firms Not In Scope

December 8, 2022
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The European Banking Authority (EBA) has launched a public consultation on new guidelines for de-risking to help improve access to finance for vulnerable customers.

The European Banking Authority (EBA) has launched a public consultation on new guidelines for de-risking to help improve access to finance for vulnerable customers.

The EBA has published new guidelines on the effective management of money laundering and terrorist financing (ML/TF) risks when providing access to financial services.

Through these guidelines, the EBA wants to ensure that customers, especially the most vulnerable ones, are not denied access to financial services without valid reason.

The EBA has opted to omit payments and e-money institutions in their guidance. This is because these sectors are set to be addressed in the EU’s review of the Payment Services Directive, which the European Commission has suggested will include amendments to de-risking requirements.

De-risking is an issue that can touch payments firms, as some can struggle to obtain a banking relationship in the EU due to being deemed too high risk.

“Decisions made by institutions to reject or terminate a business relationship might have several negative consequences,” the EBA’s guidelines state, warning that alongside payments firms, the likes of fund managers, non-profit organisations (NPOs) and vulnerable customers can be negatively affected.

“De-risking can unfairly exclude legitimate customers in certain cases,” the consultation says. “Moreover, once rejected by institutions, these customers may resort to alternative payment and banking channels where they will be less monitored and, as a consequence, the AML/CFT prevention could be hampered.”

What’s at stake?

The EBA’s consultation process, which runs until February 6, 2023, focuses on two sets of guidelines.

The first set aims to help financial institutions understand how NPOs are organised, how they can be different from other customers and what they can do to manage ML/TF risks associated with such customers effectively, instead of denying them access to financial services.

Meanwhile, the second set tackles the issue of effective management of ML/TF risks by financial institutions when providing access to financial services for consumers, NPOs and businesses.

To try and rein in de-risking, the EBA has suggested a “targeted and proportionate” approach.

This could include imposing targeted restrictions on financial products and services limits, such as the amount or the number of person-to-person transfers or the amount of transactions to and from third countries, in particular where these third countries are associated with higher ML/TF risk.

The EBA has also suggested adjusting the intensity of monitoring measures as a method to prevent de-risking.

“Credit and financial institutions should set out in their policies and procedures how they adjust the level and intensity of monitoring in a way that is commensurate to the ML/TF risk associated with the customer,” the EBA said.

Here, the EBA has recommended setting expectations of customer behaviour, such as the likely nature, amount, source and destination of transactions.

In addition, institutions have been advised to ensure customer accounts are reviewed regularly to understand whether changes to the risk profile are justified.

As part of the review process, the EBA has confirmed that it will be hosting a public hearing via conference call on January 10, 2023. Stakeholders can sign up here.

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