Financial Crime World

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Belgium’s Financial Institutions Face Compliance Risks as De-Risking Looms

The National Bank of Belgium (NBB) has issued a stern warning to financial institutions in the country, urging them to avoid de-risking practices that could lead to serious compliance risks and potentially even administrative sanctions or criminal convictions.

What is De-Risking?

De-risking refers to the decision by a financial institution to refuse to enter into business relationships with potential customers or terminate existing ones due to concerns about money laundering or terrorist financing. The NBB defines de-risking as:

  • “The decision in principle, taken a priori by a financial institution, to refuse to enter into business relations with potential customers or to terminate existing business relations with current customers on the grounds that these potential or existing customers belong to a category of persons which the financial institution alleges is linked to excessive risks of money laundering or terrorist financing”

Affected Sectors

The NBB’s circular applies to:

  • Credit institutions
  • Stockbroking firms
  • Insurance undertakings authorized to exercise life assurance activities
  • Payment institutions
  • Electronic money institutions
  • Central securities depositories regulated under Belgian law or operating in Belgium

Impact on Financial Institutions

Financial institutions may be required to review their overall risk assessment and customer acceptance policies due to de-risking practices. They may need to:

  • Carry out individual risk assessments on each customer
  • Justify any refusal to enter into a business relationship based on AML/CFT grounds
  • Comply with specific requirements and keep records of individual risk assessments and justifications for any refusal

Challenges and Concerns

The NBB has also warned that financial institutions cannot justify their refusal to enter into business relationships with customers claiming that the Anti-Money Laundering Law prohibits them from doing so where there is a high risk of ML/FT. Additionally, the cost of due diligence measures required by the AML/CFT Law is another area of concern.

Consequences of Non-Compliance

Failure to comply with these requirements could result in:

  • Administrative sanctions
  • Criminal convictions for financial institutions engaged in de-risking practices

Effective Implementation of AML/CFT Measures

The NBB emphasizes that effective implementation of appropriate and effective AML/CFT prevention measures is essential to avoid remedial measures and sanctions. Financial institutions must have a solid and effective AML/CFT framework with:

  • Adequate policies
  • Procedures
  • Internal control measures
  • Adequate record-keeping procedure

By taking these steps, financial institutions can mitigate compliance risks and maintain a strong reputation in the industry.