De-risking

De-risking is the practice of a bank terminating or restricting business relationships with entire categories of customers, sectors or countries, rather than assessing and managing the risk of each relationship individually. Typical targets include money services businesses, remittance companies, cryptocurrency firms, charities working in conflict zones, foreign correspondent banks and customers linked to particular countries. The defining feature is that accounts are closed because of what the customer is, not because of anything the customer has done.

Banks describe de-risking as a rational response to compliance costs and enforcement exposure. Regulators and international bodies have increasingly described it as a problem in its own right, because it pushes legitimate activity into less transparent channels.

• Enforcement exposure. Large penalties for anti-money laundering and sanctions failures have made banks wary of any segment perceived as high risk.
• Compliance cost versus revenue. Due diligence on a small MSB or a respondent bank in a small economy can cost more than the relationship earns. Enhanced due diligence requirements raise those costs further.
• Correspondent pressure. A bank may exit customers because its own correspondent bank is uncomfortable with them, so de-risking cascades down the payment chain. Concerns about a nested account are a common trigger.
• Reputational concern about sectors such as crypto, gambling or a high-risk merchant category, regardless of the individual firm's controls.

De-risking has had its clearest effects on correspondent banking relationships and on remittance flows. Studies by the World Bank and the Financial Stability Board in the mid-2010s documented a decline in correspondent relationships, with small economies in the Caribbean, the Pacific and parts of Africa most affected. Remittance providers serving corridors such as Somalia have repeatedly lost access to banks, threatening a major source of household income.

For a money transmitter, losing its operating account can end the business, since it needs an MSB bank account to collect funds and settle with partners. Firms that are debanked may move to smaller banks, foreign banks or sponsor banks, or turn to cash and informal channels, which reduces transparency and can increase rather than reduce money laundering risk. Each payment corridor affected becomes more expensive to serve.

The Financial Action Task Force (FATF) issued a statement on de-risking in 2014, stressing that its standards call for a risk-based approach and do not require wholesale termination of customer categories. Later FATF guidance on MSBs and correspondent banking repeated the point. In the United States, the Anti-Money Laundering Act of 2020 required the Treasury Department to study de-risking, and Treasury published a de-risking strategy in 2023. FinCEN and the federal banking agencies have issued statements that MSBs present varying risk and should not be treated as uniformly unacceptable.

In the European Union, the second Payment Services Directive (PSD2) requires that a payment institution have access to credit institutions' payment account services on an objective, non-discriminatory and proportionate basis, and that a bank refusing access give its reasons to the competent authority. The provision addresses de-risking of payment firms specifically, though it does not oblige a bank to accept every applicant.

Firms in affected sectors improve their chances of keeping accounts by demonstrating a credible AML program, commissioning an independent AML review, sharing transaction data with their bank and diversifying banking relationships. Industry groups have also explored shared due diligence utilities to spread the cost of KYC across banks. None of these guarantees access, since the decision to keep a customer ultimately rests with the bank's risk appetite.