Belgian Regulator Warns Financial Institutions Against De-risking Practices
The National Bank of Belgium (NBB) has emphasized the importance of implementing a solid and effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework to prevent de-risking practices. De-risking involves refusing to enter into business relations with potential customers or terminating existing business relationships based on the perceived risk of money laundering or terrorist financing.
What is De-risking?
De-risking is a practice where financial institutions refuse to enter into business relations with potential customers or terminate existing business relationships based on the perceived risk of money laundering or terrorist financing. The NBB stresses that de-risking practices can undermine basic legal banking services and may lead to adverse economic outcomes, including financial exclusion.
Who is Affected by De-risking Practices?
The NBB’s circular applies to the following entities:
- Credit institutions
- Stockbroking firms
- Insurance undertakings
- Payment institutions
- Electronic money institutions
- Central securities depositories regulated under Belgian law or with branches in Belgium
While the phenomenon of de-risking may extend beyond banking, the NBB currently recognizes that it is more relevant to banking than other sectors.
Impact on Financial Institutions
Financial institutions must:
- Review their overall risk assessment and customer acceptance policy to ensure compliance with AML/CFT regulations
- Conduct an individual risk assessment for each customer using a risk-based approach
- Cannot justify refusal to enter into business relationships based solely on perceived high ML/FT risks
Consequences of De-risking Practices
The NBB notes that the higher cost of AML/CFT due diligence is not a valid ground for de-risking entire customer categories. Financial institutions may be required to adjust their pricing by integrating due diligence costs.
Conclusion
The NBB warns financial institutions against engaging in de-risking practices, which can lead to:
- Administrative sanctions
- Civil or criminal convictions
To prevent such consequences, financial institutions must have a solid and effective AML/CFT framework with adequate policies, procedures, internal control measures, and record-keeping procedures.