Financial Inclusion and De-Risking : Navigating the Global Challenges

Transcription

1 Financial Inclusion and De-Risking : Navigating the Global Challenges Monday, April 3 11:05 AM Moderator: Kieran Beer, CAMS, Editor-in Chief, ACAMS moneylaundering.com Speakers: Emile Van Der Does De Willebois, Global Lead for Financial Market Integrity, Finance & Markets, The World Bank Sarah Runge, Director, Office of Strategic Policy Terrorist Financing and Financial Crimes, US Department of the Treasury Nick Burbidge, Senior Advisor, AML/CFT Initiatives, Office of the Superintendent of Financial Institutions (OSFI) Daniel P. Stipano, PARTNER, BUCKLEYSANDLER Lester Joseph, Senior Vice President, Manager, Global Financial Crimes Intelligence Group, Wells Fargo

2 Intro World Bank/ACAMS Stakeholder Dialogue on De-Risking - May 31 and June 1, Stakeholder Dialogue on De-Risking: Humanitarian Organizations and Charities - January 11, content/uploads/2015/02/world-bank-acams- Report.pdf 2

3 Emile Van Der Does De Willebois De-risking not exclusively about AML/CFT, not always about risk. CPMI report (based on SWIFT data)-shows overall increase in flows through correspondent channels while decrease of CBRs Anecdotally it appears that numbers of CBRs are still declining Real harm- Concentration risk or financial exclusion of remittance dependent countries, those dependent on trade finance or of humanitarian organizations. Effects have been easily assumed- but there is further work to be done to explore the effects of derisking at the country level and try and map out the knock-on effects of withdrawal of services at the micro level. 3

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5 Sarah Runge Treasury supports data driven exercises to identify the scope of the problem, focusing on the role of policy makers, supervisors and the private sector. Issues identified over the last three years include need: 1. to clarify regulatory expectations; 2. for foreign jurisdictions to improve the effective implementation of their AML/CFT regimes; 3. for technical assistance to help global implementation 5

6 Nick Burbidge For prudential regulators, issues around de-risking and inclusion involve potential conflicts with traditional prudential regulatory mandates. In Canada, FIs are under an obligation to assess ML/TF risks using prescribed criteria, one of which is the risks associated with the customer. Where the risk is elevated, FIs are required to apply enhanced measures to mitigate the risk. Sometimes a bank will elect to continue providing banking services but require its retained customers apply better AML/CFT controls. This is notably the case in the MSB sector. There has been a decrease in domestic financial services provided by banks to MSBs, but in most cases MSBs have found other providers. OSFI has seen situations where many MSBs were de-risked following a review of all customers but there was still retention of some MSBs by banks. Although banks are not responsible for MSB clients CDD measures, they see the MSB s transactions. 6

7 Dan Stipano Main causes are the cost of BSA/AML compliance, and the consequences of getting it wrong Besides formal enforcement actions, there are also informal actions, MRAs, and exam criticism In light of this, it does not make economic sense for institutions to maintain accounts that do not generate significant revenue Legitimate customers denied access to the U.S.& global financial system becomes less transparent Creates geopolitical issues with countries allied with the U.S. whose banks cannot get accounts here 7

8 Les Joseph Banks are generally making decisions on whom to bank and whom not to bank based on sound business and risk management principles. In general, correspondent banks are making strategic business decisions to withdraw from certain markets or exit relationships with certain financial institutions because such relationships are not strategic or profitable. In some cases, banks are withdrawing from entire markets that are considered too risky to serve. In other cases, banks are making risk-based decisions to discontinue relationships with financial institutions considered to have ineffective AML programs. In some cases, these decisions can be based on real or perceived pressure from regulators to limit the ML risks that the bank is exposed to. To the extent that these decisions contribute to problems with respect to financial inclusion, banks are willing participants in the search for solutions. De-risking may actually increase the scope of the financial crime threat to the extent that it drives activity away from mainstream financial institutions making the activity more difficult to detect and report to law enforcement. 8

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10 Humanitarian Organizations & Charities Most charities find banking relations but many face problems is transferring funds to troubled regions that are also home to sanctioned entities. When FIs delay or interdict charitable funds to war and disaster zones, lives are lost. Many factors go into FIs knowing the charities: operations, projects, donors, beneficiaries, geographic areas, third party ties and internal controls of NPOs. 10

11 Correspondent Banking The need for transparency and ongoing communication between correspondent & respondent bank Geographic/jurisdictional risk trumping all risk? Exiting a relationship without explanation: right of the financial institution v. respondent s need to know? 11

12 Solving the De-Risking Problem Charities Government approval/certification (e.g., IRS) Certification by a trusted third party Indemnification for FIs acting in good faith Develop Wolfsberg Group-type questionnaire Create shared KYC database/repository utility 12

13 Solving De-Risking (#2) Correspondent Banking Greater transparency of expectations between correspondent bank & client Database of respondents (e.g., Mexico s database) Government created insurance funds? 13

14 Takeaways Nick Burbidge 1. Banks should be incented by policy and regulation to keep services in place. These rules should not be administered by prudential regulators. 2. Bank regulators should not overreact to every minor compliance breach provided processes are sound and acts as deterrents. 14

15 Takeaways Les Joseph Jurisdictions must strive to develop and maintain effective AML/CTF regimes if they wish to maintain correspondent relationships for their banks. Banks must develop and maintain effective AML/CTF programs if they wish to maintain their correspondent relationships. The derisking problem can only be addressed if there is effective collaboration among policy makers, regulators and the financial community. 15

16 Takeaways Dan Stipano 1. De-risking is a problem on several levels because it not only raises financial access issues, but it also makes the financial system less transparent by driving business underground to the detriment of law enforcement. 2. The de-risking problem will never truly be solved as long as compliance costs make relationships unprofitable, and the costs of getting it wrong remain severe: the prospect of large civil fines, criminal fines and forfeitures, and calls to hold to hold individual AML compliance officers accountable all contribute to a highly risk averse environment that creates incentives for institutions to terminate higher risk relationships. 16

17 Takeaways Sarah Runge 17