Publication of the Wolfsberg Group and IIF Comment Letter to EBA on de-risking

On 7 February 2023, the Wolfsberg Group together with the Institute of International Finance (IIF) (thereafter called „the Group“) issued a press release, informing about their common submission of comments in response to the EBA’s public consultation on effective management of ML/TF risks when providing access to financial servics (EBA/CP/2022/13) on effective management of Money Laundering and Terrorist Financing (ML/TF) risks („de-risking“) when providing access to financial services.
The Group recommends that the EBA considers concerns regarding de-risking as intrinsically linked with the wider work to address systemic issues of Anti-Money Laundering and Countering Terrorist Financing (AML/CFT) reform underway in the EU, specifically through the European Commission’s Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing and the legislative process to implement that plan.
The Group also encourages a focus on the wider strategies to promote financial inclusion amongst Non-Profit Organisations (NPO) and vulnerable persons, including consideration of Environmental, Social, and Governance (ESG) goals.
Lastly, the Group strongly is made for a close alignment between the EBA’s work and that of FATF, specifically on de-risking, but also on wider reform matters with the aim of ensuring international consistency in all measures to tackle financial crime across jurisdictions.
—
HERE ARE THE GROUP’S SPECIFIC RECOMMENDATIONS:
Concerning the definition of „De-Risking“, the Group recommends that EBA adopts the FATF’s definition of ‘de-risking’ to align with international standards and to avoid unintended consequences: “financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with the FATF’s risk-based approach.”
Regarding the General Requirements outlined in the Consultation, it should be acknowledged that FIs have legitimate risk management reasons for exiting/declining individual customers on a case-by-case basis and that it is an appropriate and prudent business practice to consider the cost of effective risk management when determining the viability of a relationship or product offering. Under these circumstances, it should not be necessary for FIs to consider all possible mitigating measures. Hence, it is imperative to support FIs applying simplified due diligence on payment accounts with basic features by implementing a regulatory low-risk presumption for these payment accounts with basic features, this presumption should be supported by a clear articulation of the policy priority balanced against financial crime risk; and once determined, these measures should be issued by the future European Anti-money laundering Authority (AMLA).
With regard to the application of restrictions to services or products, the Group recommends that EBA revisits this guidance to ensure it does not result in tension with Article 17 of the Directive 2014/92/EU and does not result in unintended consequences.
Finally, concerning Non-Profit Organisations (NPOs), the Group recommends that the annex is updated to reflect the full spectrum of ML/TF financing risk posed by different NPOs. This will empower FIs to apply a true risk-based approach (RBA) to NPOs and not be required to treat the sector as homogeneous. The annex could also be updated to specifically address the causes of undue de-risking identified by the EBA and FATF. The Group further encourages Competent Authorities to implement an RBA designed to protect NPOs from terrorist financing abuse in line with FATF’s Recommendation 8. EBA should clarify that the list of due diligence measures in the annex is illustrative and neither mandatory nor comprehensive; instead, an FI can apply such measures as required to manage the risk posed by an NPO effectively, based on the FI’s customer risk assessment where higher-risk NPOs are involved. It would be optimal for the Supranational Risk Assessment (SNRA) to be updated to reflect Member State risk assessments, thereby supporting the application of simplified due diligence when NPOs pose a low risk of ML/TF.