Every organization serving the financial sector must keep up with existing deposits and compliance and follow new updates, new regulations, and trends in this area. Although following this sector's job is seen as laborious and time-consuming, failure to follow up brings in non-compliance with the new regulations. Failure to comply with regulations can also damage institutions' reputation, lose customers, and be subject to severe penalties from regulators.
Therefore, it is very important to implement appropriate AML-CTF compliance programs in institutions. De-Risking, on the other hand, is a strategy that companies apply when they cannot manage these money laundering risks that they have obligations to. You can find more detailed information about De-Risking and AML in the rest of your article.
What Is De-Risking?
As we mentioned, there is a law, regulation, etc. that financial institutions follow. In order to comply with these regulations, a certain AML Program should be established in organizations. When we look at the basis, these programs differ according to institutions because the risk level and risk understanding of each institution are not the same. De-Risking can also be considered as a strategy that can be implemented by those organizations that cannot manage their money laundering risks. In this process, financial institutions can increase their expenditures for the compliance program they implement, take new measures, and cut off relations with institutions or customers they see as risky. Such action steps take place in financial institutions as De-Risking.
If financial institutions want to terminate business relationships that they find risky within the scope of De-Risking strategies, they generally choose embassies, diplomats working for them, correspondent banks, money business services because these organizations have higher risk scores. When we look at them as customers, many people working in embassies, for example, are referred to as politically exposed persons, which from the AML perspective may mean that they are at higher risk due to their potential relationship to bribery and corruption.
FATF's Comment on De-Risking
According to the Financial Action Task Force (FATF) definition, De-Risking refers to situations where financial institutions terminate or restrict commercial relationships with customer categories, and it is a rather complex situation outside of money laundering (AML) and counter-terrorism financing (CFT). FATF has some preliminary information emphasizing the need in the private sector to determine the causes and effects of De-Risking. FATF's main De-Risking approach is based on FATF Recommendations. As a result, it requires financial institutions to identify, understand, evaluate, and implement AML / CFT measures commensurate with the identified risks.
When financial institutions establish correspondent banking relationships, these institutions must implement Customer Due Diligence measures on the defendant bank. In addition, financial institutions are required to collect sufficient information about the responsible bank to understand the reputation of the defendant bank, its business, and the quality of its supervision, including in a money laundering or terrorist financing investigation. According to the FATF Recommendations, when establishing and maintaining correspondent banking relationships, banks with whom financial institutions are related are not required to apply normal Customer Due Diligence procedures to their clients, but the important point is that this is not the case for high-risk relationships.
What Can Financial Institutions Do to Deal with Risks?
De-Risking activities are different in every institution, so there is no clear statement to reduce these risks. In addition, financial institutions can reduce the risk of banking services for non-profit organizations to a large extent, increase Know Your Customer and Customer Due Diligence measures applied to customers, use appropriate software to facilitate the process (Transaction Monitoring), and use alternative finance channels for humanitarian crises can be created.
Sanction Scanner provides end-to-end AML compliance solutions for organizations at risk of money laundering so that these institutions do not have difficulty in understanding, assessing, and managing their risks. Do not hesitate to contact us for detailed information.