Stakeholder Dialogue on De-risking Findings and Recommendations © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Photo Credit: istockphoto.com Design & Layout: Aichin Lim Jones INTRODUCTION GENERAL THEMES On May 31 and June 1, 2016, the World Bank and De-risking- the concept ACAMS (Association of Certified Anti-Money At a very general, yet fundamental level, there was Laundering Specialists) organized a two-day debate about the objectives of AML measures as workshop in Washington D.C., the “Stakeholder laid out in the Financial Action Task Force’s (FATF) Dialogue on De-Risking.” recommendations and national legislation. Is the The capacity audience of nearly 100 invitees came objective to ensure that higher risk clients are not from around the world and represented governments provided access to the financial system, to keep the (including policy, regulatory and law enforcement payments system “clean”? Or is it rather to ensure authorities), non-governmental organizations that there is a way to keep track of all money flows, (humanitarian organizations and think tanks), including those related to profits of crime, and international organizations, financial institutions, thereby provide information to law enforcement to and academic specialists. detect, investigate, and prosecute predicate crime This report reflects the main findings of the meeting and money laundering? Although most would as well as the recommendations made by participants recognize the latter as being the objective of AML to deal with some of those findings. It should be writ large, de-risking appears to be furthering the emphasized that the findings and recommendations former. are provided without endorsement by either the There was active debate – particularly among World Bank or ACAMS. They are merely a reflection representatives from the private sector – on the use of the discussion. For that same reason, they are not of the term “de-risking” which is in itself pejorative. all internally consistent. The comments illustrate FATF defines it as  “the phenomenon of financial how differently various stakeholders who attended institutions terminating or restricting business the summit see the de-risking phenomenon. At the relationships with clients or categories of clients same time, some reflect a common understanding to avoid, rather than manage, risk in line with the or at least some common perceptions. A great FATF’s risk-based approach”. benefit of the workshop was that attendees, many While participants acknowledge it is now the whom had never interacted on these issues and with standard term used, a number of banks disagreed viewpoints shaped by being from disparate sectors with this definition and indicated that when they came to better understand one another. At the end terminate a business relationship, they do so on a of the workshop a brief survey was conducted case-by-case basis. It just happens that there are a which provides the basis for future events under the lot of those cases, and therefore to the outside world umbrella of the Stakeholder Dialogue. it may only appear to be wholesale. Some financial institutions therefore preferred the more objective “termination of business relationships” as a way to describe what is happening. STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS 1 Notably some country representatives argued that In the eyes of many banking sector representatives, it in their case it was often simply the geographic / is precisely the cost of mitigating the risk of regulatory country/jurisdiction risk that was the main action or of enhanced regulatory scrutiny, or even of determining factor in correspondent banks’ prosecutorial action by criminal law enforcement, in decisions to terminate relationships and that there response to a perceived infringement of Anti-Money was no “case-by-case” approach. For example, Laundering/Combating the Financing of Terrorism they argued that however sound an institution (AML/CFT) rules that has led to the decision to is, or however low risk the customer base, the restrict, withdraw, or not provide services. Policy jurisdiction risk trumps all and it will therefore and guidance in many jurisdictions direct financial always be considered high risk if located in a high- institutions to adopt a “risk-based approach”, which risk jurisdiction. allows the bank to establish their own framework for assessing client risk and adapting their procedures to Certain banking representatives acknowledged deal with that risk. that in some cases they had allowed one factor (particularly country risk) to be determinative and Banks’ representatives however argued that, in practice, that they would need to improve risk differentiation regulators second-guess the banks, treating certain to enable better distinctions between high-risk and categories of client categorically as high risk and low-risk institutions in the same country. Other requiring financial institutions to undertake extensive institutions indicated that financial crime risk- (and expensive) steps to mitigate those risks. Thus a appetite statements issued at the level of their substantive amount of due diligence, as well as ongoing boards of directors were increasingly determining transaction and account monitoring, is required by the those countries that were a target market for the bank to be able to establish a relationship with each of institution and those which, given the financial those clients considered high risk by the regulator. At crime risk, were not. that stage the risk/reward equation starts to play a major role and relationships with clients whom regulators No specific recommendation was made on what consider high risk, but who generate little income, or terminology to use to describe the phenomenon. in some cases, lose money, become less attractive. In Objectively speaking, everyone can agree that de- addition, unlike the provision of credit or loans, the risking in general terms describes the decision to downside is much harder to calculate - if you get a restrict or withdraw financial services or to decline credit decision wrong, the costs are clear. If you get to establish a relationship to provide financial application of the AML/CFT requirements wrong, the services in the first place. The disagreements start effects of the regulatory response are much harder to when imputing the motives for doing so (e.g. calculate. When the risk of criminal law enforcement whether it is an excessive reaction or a rational are added, the costs become higher1 still. response to recent regulatory action, a simple cost/ benefit calculation based on the risk-profile of an A proper risk-based approach should allow financial institution or the result of a strategic reorientation) institutions to determine their scope of due diligence. or the way in which it is done (e.g. whether or not However, uncertainty about the way in which the decision is made pursuant to a case-by-case individual examiners or regulators address certain analysis, or is more wholesale in nature). compliance issues, leads banks to avoid risks entirely. This is often due to the spiraling costs associated Regulatory/supervisory/law with satisfying regulatory expectations that are not enforcement action consistent across jurisdictions or across regulatory It was acknowledged that banking regulators/ agencies in the same jurisdiction. Some participants supervisors/law enforcement have a crucial role to from financial institutions said that because play. Regulators and supervisors set the terms for regulators second-guess their risk-based decisions, how financial institutions behave (preparation of they would rather have regulators issue detailed legislation, regulation, examination and supervision, guidance with a predictable examination/assessment and enforcing compliance). framework that would make it clear whom they can 1 For example, a compliance officer confronted with the possibility of being prosecuted for supporting terrorism (because of the type of client or its geographic location) might always decide the “cost” of onboarding was always too high--regardless of the potential profit for his bank 2 STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS and cannot bank. Financial institutions indicated There was general agreement that regulators/ the need for consistent regulatory/supervisory supervisors can play a valuable role in providing interpretations and approaches across national potential correspondent banks with information on boundaries and, within the United States, between the risk profile of countries as a whole and of specific state and Federal regulators2. institutions. In addition, Mexico demonstrated how its regulator had put in place a special centralized Regulators/supervisors on the other hand argued database for due diligence of respondent banks’ that they are not prescriptive in how they deal with cross-border transactions that was accessible by banks’ risk-based approach. They argued that their their correspondent banks, thus providing a system- enforcement actions in the past were not about wide perspective on each financial institution’s second-guessing certain borderline cases, but about operational level. To overcome privacy and data- egregious systemic breakdowns in internal controls protection challenges in the sharing of information, that deserved regulatory or legal action. They pointed the adoption of specific regulations/legislation may out that they do not punish every infringement – only be required. those where there is a willful and/or systemic failure to adequately apply AML/CFT rules. Suggested Recommendations •• Proactive interaction should take place between regulators and correspondent banks about risks arising from correspondent banking relationships in some cases before the relationship commences. Sharing of specific risk-related information with (prospective) respondent banks should be encouraged; •• Regulators/supervisors should seek to provide greater clarity and consistency concerning regulatory expectations. Specific issues mentioned include the conditions under which it would be required to conduct due diligence on the client of a respondent bank (so called “know your customer’s customer”); •• Regulators/supervisors should provide guidance and engage with financial institutions in addressing problems before resorting to enforcement action/fines; •• Regulators/supervisors should be more transparent on how they will deal with infringements in order to provide more predictability. They should publish their methodology and conditions for sanctioning – e.g. the criteria they use to determine a sanction. The regulator/ supervisor should publish specific examples of infringements and how they were be dealt with. Regulators should provide periodic updates to regulations based on handled cases; •• From the respondent side, regulators/supervisors should do more to provide information on what their jurisdictions are doing on the identification and mitigation of AML/CFT risks and more generally on the functioning of their AML/CFT system; •• The regulator/supervisor should encourage the use of customer due-diligence utilities/platforms by banks that would lower due-diligence costs by allowing for the sharing of customer data among a wider group of banks and thereby facilitate access to financial services; •• Correspondent banks should use regulator-approved digitization and data analytics for customer due diligence of respondent banks; •• Internationally, regulators/supervisors should cooperate to ensure harmonization of regulations to facilitate global compliance; •• In order to further these recommendations, stakeholders should support the creation of a research project, which would be undertaken by a neutral party, to develop a clear set of regulations/guidance, plus an accompanying methodology for examination, supervision, and enforcement of those regulations/guidance, that was practicable at the bank level and that could be endorsed by a broad range of bank regulatory/supervisory agencies. This would not, however, by itself remedy concerns over the risk of criminal prosecution of individual compliance officers or of the bank 2 itself. STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS 3 SPECIFIC THEMES volumes and associated fees are required to justify a relationship from a profitability perspective. Correspondent banking Therefore, institutions in smaller jurisdictions, One of the areas of financial activity to be affected by generating lower volumes, particularly if perceived de-risking is correspondent banking. Correspondent as presenting higher risks, are most likely to suffer banking is defined as the provision of a current or since these relationships are often unprofitable. At other liability account, and related services, by one the same time, due-diligence requirements, and bank “the correspondent bank” to another financial increased regulatory attention, have increased costs institution “the respondent bank”, including affiliates, – in some cases (trade finance) correspondent banks used for the execution of third-party payments may incur costs up to 85,000 euros to establish a and trade finance, as well as its own cash clearing, new relationship. Thus, as a whole, correspondent liquidity management, and short-term borrowing or banking has become less economically attractive- investment needs in a particular currency.3 and profits need to increase or costs decrease to change the profit/loss dynamic. Many of those present indicated that they, or banks in their jurisdictions, are feeling the effects In their risk perceptions, large banks may also be of correspondent banks refusing, restricting or influenced by the decisions of other banks. The withdrawing from the provision of correspondent withdrawal of service by one bank may trigger similar banking services. In response, or in an effort to action by other banks as there may be uncertainty maintain their correspondent banking relationships, as to why the other banks exited the relationships respondent banks are withdrawing the provision of or the correspondent may not want to risk being the financial services from certain clients considered last correspondent in the market proving a high-risk to be high risk (see further below). In some ways product or servicing a high-risk relationship. the correspondent banks are functioning like a Some banks also indicated, however, that a regulator to their respondent banks – and the latter particular correspondent banking relationship emphasized the importance of understanding the is not always profit-driven. According to the expectations of the correspondent banks. It is, said participants, in certain cases, the relationship is some, a case of “comply or die” – i.e., comply with driven by a broader profit objective of the bank, the expectations of the correspondent or accept that such as facilitating market penetration, diversifying your access to correspondent banking (and dollar portfolio risks, or meeting the financial needs of a clearing) will be terminated. particular corporate customer operating in many For the large banks, correspondent banking, like countries across the world. any business activity, needs to be profitable to The consequences of withdrawal of correspondent be worth engaging in, and it is therefore a matter banking services on the respondent bank economies of weighing the costs for mitigating regulatory/ are little understood or researched, but, anecdotally supervisory/law enforcement risks and the appear to include a switch to cash transactions and to benefits at a product or respondent bank level. currencies other than USD (and to lesser extent EUR The regulatory expectations about the type of and GBP). It also may include an increase in shadow information and depth of understanding necessary banking (where transactions are taken outside of the to establish and/or retain a relationship for a high- regulatory radar) and the use of “nested” relationships risk respondent bank, as well as the costs associated – where a bank whose correspondent relationship has with monitoring these relationships on an ongoing been terminated, will use the correspondent relationship basis, come at high costs to the correspondent of another bank for its correspondent banking needs. bank; not always offset by sufficient revenue to Some participants suggested that the effects on their be profitable. This is further compounded by low (small) economies was already disastrous, affecting interest rates and liquidity coverage ratios and families dependent on remittances and that it could other prudential requirements. High transaction have severe humanitarian consequences. 3 See Wolfsberg Group of Banks, Anti-Money Laundering Principles for Correspondent Banking, p1 available at http://www.wolfsberg- principles.com/pdf/standards/Wolfsberg-Correspondent-Banking-Principles-2014.pdf 4 STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS Suggested recommendations •• It is important that there is a personalized relationship between the respondent and the correspondent bank and to ensure there is a direct line of communication between compliance departments in both banks. In that communication, banks should focus on the risk profile of the clients rather than exclusively on the process/controls of the respondent bank; •• Where low volumes are an impediment to the establishment of a correspondent banking relationship, respondent banks in a jurisdiction should seek to consolidate their relationship through one bank to increase attractiveness. This may be a factor for regulators to consider in encouraging the consolidation of the banking sector within their local jurisdictions; •• There may be a role for regional development banks here to facilitate through guidance and technical assistance, the consolidation of institutions, transactions, and information in the regional financial services sector; •• Regional or national banking associations could play a role in establishing principles on correspondent banking; •• Regulators should issue a standard framework or guideline to decrease uncertainty about the treatment of detected failings in (the establishment of) correspondent banking relationships; •• Although ex-ante and more proactive information sharing to avoid termination was preferred, in the case of termination, correspondent banks should be transparent in their reasons for terminating a relationship to allow respondent banks to improve their systems. Correspondent banks should share with respondent banks the information on transactions they find concerning so that respondent can assess their risk assessment and strengthen their risk assessment; •• Correspondent banking should be considered a public good and therefore public funds/powers should be brought to bear on ensuring their viability; •• Banks that make a profit out of helping governments to raise funds should be asked, in return, to play a role in ensuring the establishment/maintenance of correspondent banking relationships; •• Governments should provide an indemnity/guarantees to banks establishing a correspondent relationship when they are able to show a sufficient degree of due diligence. This way sufficient transparency on transactions through their banking sector is maintained; •• Banks should be given credit, as under the US Community Reinvestment Act, to encourage them to take on correspondents in high-risk regions; •• Further work should be undertaken to identify and quantify the negative effects on the economies of smaller jurisdictions (trade finance and remittance dependent individuals/families) to strengthen the case for public intervention/concern; •• Correspondent banks should, more purposefully, seek to implement processes to identify and, where possible, measure the correlation between social impact (both direct and indirect) and long-term business development, and give this factor sufficient consideration when conducting organizational strategic planning. It is argued that such an approach would encourage correspondent banking and create mutual benefits for the correspondent bank, respondent bank and wider customer base, through positive impacts on profitability, customer loyalty, and financial services accessibility; •• Insurance for AML/CFT related regulatory enforcement penalties should be considered and implemented at the regional and/or national levels; •• The establishment of a KYC utility to allow correspondent banks to have timely access to relevant information on potential respondent banks would potentially significantly reduce the costs of establishing correspondent banking relationships. The idea would be to establish a centralized data warehouse and processing center that would hold all customer information from all member banks in a country/region STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS 5 and would serve as a central point for confirming adherence to KYC standards and sanctioning money transfer processing. It would operate a bit like a credit bureau where basic customer data and scoring algorithms are held centrally and ratings are provided to subscribers or paying customers. This could have the advantage of greater independence, security and credibility, coupled with better technology, and could insulate global banks from taking direct risk on smaller, harder to assess, higher risk respondent banks in higher risk jurisdictions. The advantage would be that the utility could guarantee that senders and users of funds in the local market met all KYC requirements. Block-chain technology would also improve the quality/reliability of available information. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) or the IFC may play a role in establishing these utilities. An official sanctioning of the utility would give it extra value – although chances of that were acknowledged to be slim; •• Governments and/or the private sector should also consider a centralized utility for transaction monitoring to help defray the significant cost associated with transaction monitoring. The cost of monitoring alone has been sufficient to prompt terminations of relationships; •• Governments/international organizations should consider the establishment of “white-lists”, identifying respondent banks that are considered to meet requisite standards in their internal controls and client basis, thereby facilitating the establishment of correspondent banking relationships with these respondent entities; •• Respondent banks could be subject to an independent and transparent evaluation to be made by a reputable audit firm to ascertain the existence and effectiveness of their AML/CFT internal system. An ISO-like “certification” process could also be envisaged to add credibility, by demonstrating that respondent banks’ AML/CFT systems meets international standards. This could increase level of trust of correspondent banks. A certificate is easier to display than an inspection report; •• Attempts should be made to disaggregate risk assessments/differentiate risk at the entity level, to avoid lower risk entities in higher risk jurisdictions being classified as high risk merely on the basis of their geography; •• Respondent banks could sue correspondent banks for severing relationships based on discrimination provisions – along the lines of rules that already exist for community banking in the US; •• To enable support respondent bank relationships with correspondents, permanent platforms for dialogue between local regulators and their OECD counterparts should be established; •• Correspondent banks should agree on a common questionnaire in terms of addressing common unknowns. Other Clients Affected by De-risking accounts closed/been unable to open accounts and experienced significant delays and very detailed Certain categories of client are considered to be, in information requests – be it because of the banks’ and of themselves, higher risk – whether justified concerns about their activity or about the anticipated or not – which entails higher due diligence costs reaction of the regulator/ correspondent bank to when establishing or monitoring such relationships. their having such accounts (see above). Certainly where the revenue generated by such clients is low, banks may decide to terminate Charities/non-profit organizations relationships with such clients – or not to establish There was general agreement on the vital role them in the first place. Two categories of clients played by non-profit organizations and charities in were frequently mentioned in this regard: remittance conflict zones and trouble spots around the world. companies and charities/non-profit organizations Humanitarian work is challenging enough as it is; (NPOs). A number of them have had their bank the inability to move funds or significant delays have 6 STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS made this work even harder, forcing some to close natural disasters can result in death from starvation, operations in areas of significant need. Many noted exposure, and disease. The elderly and the young that charities are automatically considered high are particularly hurt by de-risking and are literally risk (and even more so when operating in troubled dying as a result. As one executive from a charitable regions) – without consideration of their specific organization put it, “The impact of de-risking is real operations or the measures they have put in place and strong. In trying to prevent money laundering to ensure legitimate use of the funds or changes in and terrorism finance, restrictions on sending money FATF requirements and guidance. Representatives are resulting in the death of persons, particularly from charities provided examples of being unable victims of terrorism.” This contributes to reducing to move funds through the global banking system the space for civil society to operate in fragile to troubled regions, including for programs countries, undermining overall foreign policy supported by governments’ development agencies. goals, while at the same time complicating AML/ The consequences go beyond a population being CFT objectives through encouraging alternatives underbanked: the inability to get humanitarian use of cash that is less secure and traceable. assistance to refugees from political conflicts or Suggested Recommendations •• Safe-haven provisions should be granted to financial institutions that bank charities in good faith; •• Financial institutions should be transparent and provide retail customers such as NPOs and MSBs with reasons for terminating accounts, and opportunities to address issues of concern before closing accounts; •• Charities should be subjected to a vetting process to ensure they meet high standards for transparency. Regulators should support a standard audit scope and issue consistent guidelines to provide clarity and lower compliance costs, facilitating risk differentiation, and allowing for different treatment of individual NPOs; •• The establishment of a utility (possibly from the IRS) that conducts (some of the) due diligence on non- US NPO’s should be explored. Some form of repository of NPOs’ information could facilitate banks processing of funds and assist charities in due diligence obligations; •• White lists should be considered for vetted NPOs to facilitate the provision of financial services to those entities; •• Public entities (possibly central banks or regional development banks) should step in to facilitate the movement of funds, even on an emergency basis, from reputable NGOs that have lost their banking relationship; •• The “particularly vulnerable” language in the Interpretative Note to FATF Recommendation 8 should be removed4. International and national policymakers should avoid similar language in the future and should avoid over-stating the risk associated with NPOs; •• A study should be commissioned to provide a deeper analytic base to analyze the challenges confronting NPOs and to provide options for next steps5; •• A separate discussion or workshop focused more explicitly of bank de-risking on NPOs should be organized; •• A safe haven for banks and bank representatives that meet certain criteria when dealing with NPO clients should be granted. 4 Progress has been made through the active involvement of FATF Secretariat and international organizations in the workshop. 5 The Gates Foundation has already been conducting a similar study. STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS 7 Remittance companies/Money Services of supervision exercised are not always clear to Businesses (MSBs) the banks doing business with them, which may contribute to their relationships being terminated. Remittance companies indicated they have Whether the actual risks are as high as they are increasingly lost banking relationships over the perceived to be is open to discussion: An average past few years, at times with only five to ten days’ MSB transaction is 350 USD and thus entails a low notice. This prevents the growth of their business ML/TF risk. and, in the worst cases, when the MSB doesn’t have alternative banking relationships, puts them According to some participants, banks use a wide out of business. The result is that transactions that brush when looking at their risk and do not focus on might have been handled by MSBs are driven individual entities, sometimes making it impossible “underground” into unregulated channels to remit for even the most risk-aware and compliant MSBs the funds. An extra challenge for MSBs in the to maintain relationships. MSBs have no leverage US (and for banks that are providing services to against the banks. Similar to correspondent banking, them) is the fact that they are subject to different beyond a few anecdotal instances, there is no solid regulations in each state, making compliance very evidence and analysis of the extent to which de- complicated, time consuming, and expensive. More risking, beyond affecting the business of the MSB generally, the status of MSB compliance with local and their employees, is also affecting those people AML/CFT regulation, and the level and intensity and businesses dependent upon remittances. Suggested Recommendations •• Some form of KYC utility should be introduced at the MSB level to facilitate gathering relevant information on each MSB, including regulatory information. Respondents and correspondents should have access to this utility; •• The following issues should be included in the utility: •• Does the MSB have a solid compliance program in place? •• Does the MSB conduct internal monitoring and independent reviews based on its risk? •• Are the MSB licenses and registrations current? •• How many types of services does the MSB provide? •• Does the MSB conduct cross-border transactions? •• Are the primary services provided conducted in an agent relationship with a large MSB (i.e., Western Union, Money Gram, etc.)? •• Does the MSB have limits in place when conducting its services? •• What is the track record and experience of the MSB? •• Is the MSB offering services in a High Intensity Financial Crime Area (HIFCA) or High Intensity Drug Trafficking Area (HIDTA)? •• Does the MSB have subagents? •• Regulatory standards for MSBs should be harmonized across the US states to facilitate compliance and thus bring down costs. This would also provide a measurable framework of regulations that all interested parties (MSBs, state and federal regulators and financial institutions) could easily audit and monitor MSB compliance to the regulations, thereby minimizing actual risk as well as perceived risk; •• All jurisdictions/regulators should be able to show that they are comprehensively regulating MSBs and be public about their regulatory activity in order to provide a degree of comfort to foreign banks/regulators. 8 STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS International standard setters and Customer Due Diligence and financial inclusion organizations and NPO-sector guidance and support (revision of Recommendation 8 and guidelines on NPO A final topic for discussion concerned the role that sector). It also envisages putting more emphasis on international standard setters and international de-risking in the context of the mutual evaluation organizations can play to help countries and process. institutions address the withdrawal of financial services. Though they may have come late to On the other hand, the role of international the understanding of the topic, international organizations should not be overestimated. organizations, notably FATF, the IMF, the World Guidance can be issued but it requires the national Bank Group, the Financial Stablility Board (FSB), regulators and supervisors to implement it. and various regional organizations have now put it Decisions to terminate a relationship are individual on the international agenda – notably of the G20 – business decisions, particularly at the global which is facilitating global recognition of the issue. bank level. International organizations should be realistic about the influence they can exert on those It is understood that not addressing the issue will decisions. likely only drive financial services underground and therefore facilitate money laundering and The IMF is seeking to implement fast checks terrorism financing. FATF has already issued of jurisdictions to facilitate data collection and several guidance documents on the risk-based understanding of the issue at the jurisdictional level approach as it applies to different sectors to address through its Article 4 Surveillance. It will also make de-risking – even as FATF works with the FSB to efforts to improve the measurement of country gain empirical evidence on de-risking. Another risk, maybe through technical assistance. However, part of their work stream involves clarification of jurisdictional nuances exist and drivers vary widely regulatory expectations through broad guidance on so implementation of assistance must take this into correspondent banking (expected to be published in consideration and not be generic. October 2016). Additionally, FATF is working on Suggested Recommendations •• As neutral parties, without a direct stake, international organizations should play a role in fostering dialogue and bringing parties together. They should act as an honest broker in facilitating understanding and establishing trust between correspondent and respondent banks and/or their regulators, financial institutions, and their customers working in higher risk jurisdictions, and regulators and the private sector (banks, NPOs, and MSBs); •• By assisting countries in improving their AML regime or the supervision and regulation of the financial sector, international organizations/technical assistance providers should help address (correspondent banks’) concerns about the AML/supervisory regime in a particular country; •• • Also as providers of technical assistance, they should communicate the efforts that specific countries are taking to improve their AML and general financial supervisory regime; •• To increase attractiveness of correspondent banking, international (prudential) standard setters should seek to effect a relaxation of the international rules (BCBS) on the liquidity coverage ratio; •• FATF should seek to clarify regulatory expectations on the degree and intensity of due diligence to be conducted by a correspondent bank – and whether, and if so under what circumstances, due diligence should be exercised on the clients of the respondent bank; •• FATF should continue to monitor implementation of its revised recommendations to ensure that outdated perceptions of high-risk groups reflects current assessments; STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS 9 •• International organizations should extend guarantees to cover smaller banks in emerging markets and act as guarantors for a select set of client banks that meet their standards. Those (local/respondent) banks would pay for this service; •• International organizations should play a role in the establishment of new utilities and other forms of relevant information, as well as “white lists” of entities; •• In furtherance of their public function, international organizations should establish a regulated US bank that can act as a US correspondent for emerging market banks and join the global payment system as a participating US clearing bank. This would enable the direct provision of correspondent accounts to banks, improving inclusion of banks that were sound and well run, but too small to be cost effectively served by large commercial banks. •• International organizations should support the formation of a research project as suggested in section 2 above. Next steps diligence costs. With that in mind, the World Bank and ACAMS plan to organize, in the short to mid- Following the event a survey of participants was term, two further events focused on specific topics. conducted to solicit views on the possible next The first such event will focus on the withdrawal of steps to take. Broadly speaking, there was strong financial services from humanitarian organizations support for the release of a report and the creation and charities, and seek to provide examples of of special working groups to deal with parts of the practices that have enabled such organizations to derisking/financial inclusion problem. Specifically, maintain access. The second event will likely focus there was support for the development of guidance more specifically on correspondent banking and the and specific examples and for a closer look at the measures that can be taken to decrease costs and potential of KYC and other utilities to bring down due provide more regulatory comfort. 10 STAKEHOLDER DIALOGUE ON DE-RISKING: FINDINGS AND RECOMMENDATIONS