Banking
4 November 2021 | Business, News

“De-risking” and Financial Exclusion

During the last few years banks have been taking an increasingly risk-averse position, an action that has seen a rise in the number of people who are excluded from banking systems which are becoming more and more crucial to our everyday lives.  As transactions move online and the use of cash reduces, entire demographic groups are finding themselves marginalised from certain sectors; a customer who is prevented from accessing regular banking services may be forced to rely on alternative methods of transferring funds, increasing the risk of down-the-line money laundering activity, and the financing of terrorist activities.

For almost everyone access to financial services is an essential part of everyday life.  At the simplest end of the scale people require bank accounts to receive income and to manage outgoing expenses; additionally, a bank account is required for being employed or for receiving benefits.  Access to savings and affordable, regulated credit are important in allowing people to deal with unexpected expenses.  De-risking strategies that banks are adopting create barriers to modern society.

De-risking moves have been under scrutiny by the World Bank for a number of years, their concern being that such action could hamper “anti-money laundering and combatting the financing of terrorism objectives”.  In 2016 the Financial Conduct Authority issued a statement saying that removing product options from particular groups in order to deliver “effective money-laundering risk management need not result in wholesale de-risking”.  Well in to 2021 the European Banking Authority made similar points and published regulatory instruments to deal with the problem, also adding that refusing to provide banking facilities to entire groups could indicate deficient AML and CFT policies.

One solution to the financial exclusion problem is the requirement for banks to provide a basic payment account to those who are legally resident in the UK.  The regulations that apply to these accounts ensure that no one is discriminated against even if regarded as high risk, such as those on low incomes or of no fixed address.  While termination of these accounts can only be done in specific circumstances, refusal by a bank to provide an account to an individual would, at most, result in a complaint to the Financial Ombudsman Service, though it is unlikely that such a complaint would lead so a particularly satisfactory outcome for the complainant.

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