EBA opinion on “De-Risking” – Finance and Banking

On January 5, 2022, the European Banking Authority (the “TSA“) issued an opinion on the extent and impact of risk reduction in the European Union (“EU“) and the measures that competent authorities should take to combat undue risk reduction (the”Opinion“).

In the view of the EBA, risk reduction refers to decisions made by financial institutions to refuse to establish or terminate business relationships with individual clients or categories of clients associated with money laundering. higher money (“ML“) or terrorist financing (“TF“) risk, or to refuse to carry out transactions with higher ML / FT risk.

Interestingly, the EBA states in its opinion that although decisions not to provide services to clients in certain risk categories may be legitimate and comply with Article 14 (4) of the Directive ( EU) 2015/849 (the 4^e Anti-Money Laundering Directive), reducing the risk of entire categories of clients, without taking due account of the risk profiles of individual clients, may be unwarranted and may be indicative of ineffective ML / FT risk management.

In order to assess the extent and impact of risk reduction in the EU and to better understand why institutions decide to reduce the risks of particular categories of customers instead of managing the risks associated with such relationships, by 2020 and 2021, EBA has contacted all relevant competent authorities across the EU, as well as external stakeholders.

As a result, EBA observed that the risk reduction:

1. occurs across the EU and affects a range of customers, including customers who are themselves institutions such as payment institutions (IPs) and electronic money institutions (IMEs);
2. may lead to adverse economic results or financial exclusion. The latter is worrying because access to at least basic financial products and services is a precondition for participation in modern economic and social life; and
3. has a negative impact on the achievement of the EU’s objectives, in particular those related to the effective fight against financial crime and the promotion of financial inclusion, competition and stability in the single market.

It should be mentioned that section 7 of the report annexed to the EBA opinion summarizes the existing provisions in the EBA instruments which help to address the main risk reduction factors and, if applied correctly, should help reduce cases of undue risk reduction.

To complement the latter, in its opinion EBA identified a number of measures that competent authorities and the European Commission and co-legislators could take to help avoid undue risk reduction. In particular, EBA encourages competent authorities to engage more actively with institutions that reduce risk and with users of financial services who are particularly affected by risk reduction in order to raise awareness of the rights and responsibilities of financial institutions. establishments and their clients.

The EBA also advises the European Commission, regarding the Payment Accounts Directive, to take action to clarify the interplay between AML / CFT requirements and the right to open and use a payment account with basic functionalities, and take advantage of the next revision of the Services Directive (PSD2) to ensure greater convergence in the way in which payment institutions access the payment account services of credit institutions.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.