Bank de-risking represents a market failure. In such instances, either government or the public sector must intervene to re-align market factors, either through incentive programs or through enhanced regulatory guidance, concludes a new report from the Global Center on Cooperative Security and Oxfam America, Understanding Bank De-risking and its Effects on Financial Inclusion.
According to the report, the goals of financial inclusion and anti-money laundering and countering the financing of terrorism (AML/CFT) are not inherently in conflict, although tensions emerge in practice. Overly restrictive AML/CFT measures “may negatively affect access to financial services and lead to adverse humanitarian and security implications,” the report states. It adds that de-risking actually contributes to increased vulnerability by “pushing high-risk clients into smaller financial institutions that may lack adequate AML/CFT capacity, or even out of the formal financial sector all together.”