WASHINGTON — On April 10, 2023, The US Treasury Department released the 2023 Risk Reduction Strategy in accordance with the Anti-Money Laundering Act, 2020 (AMLA). This factsheet summarizes key findings and policy recommendations to address the issue of de-risking, which refers to financial institutions indiscriminately terminating or restricting their business relationships with broad categories of customers rather than analyzing and to manage the specific risks associated with these clients.
The main conclusions of the report are:
- Profitability is the main factor in financial institutions’ risk reduction decisions, but profitability is influenced by a range of factors, such as the available resources of a financial institution and the cost of implementing the risk reduction Money Laundering/Terrorism Financing (AML/CFT) compliance measures and systems proportionate to the risk posed by a client, among other factors.
- Customers facing the most acute risk reduction challenges include:
- Small and medium-sized money services businesses (MSBs) that offer money transfer services.
- Non-profit organizations (NPOs) operating overseas in high-risk jurisdictions.
- Foreign financial institutions with low volumes of correspondent banking transactions, particularly those operating in financial environments characterized by high AML/CFT risks.
This report recommends that the federal government:
- Promote consistent expectations for oversight, including through training for federal examiners, that considers the effects of risk reduction;
- Analyze account termination notices and notice periods that banks provide to NPO and MSB customers and identify ways to support longer notice periods where possible;
- Consider proposing regulations requiring financial institutions to have reasonably designed, risk-based AML/CFT programs, supervised on a risk basis, possibly taking into account the effects of financial inclusion;
- Consider clarifying and revising the Bank Secrecy Act (BSA) AML/CFT regulations and guidance for MSBs;
- Strengthen international engagement to strengthen the AML/CFT regimes of foreign jurisdictions;
- Expand international cooperation and consider creative options, such as regional consolidation projects, with our international counterparts;
- Support the efforts of international financial institutions to reduce risks through related projects and technical assistance;
- Continue to assess the opportunities, risks and challenges of innovative and emerging technologies for AML/CFT compliance solutions;
- Build on Treasury’s work to modernize the U.S. sanctions regime and its recognition of the need to specifically calibrate sanctions to mitigate unintended economic, political, and humanitarian impacts;
- Reduce burdensome requirements related to processing humanitarian aid transactions;
- Monitor and measure overall changes in banking relationships with surveyed banks, MSBs and NPOs; And
- Encourage continued public and private sector engagement with MS businesses, NPOs, banks and regulators.
As outlined in the strategy, these policy options offer the potential for positive impact that exceeds the assessed risk and leverages relevant Treasury policy tools and authorities. Although no individual recommendation is likely to be transformative on its own, Treasury believes that the recommendations will have positive cumulative effects on the issue of risk reduction.