Treasury Department Announces 2023 De-Risking Strategy

The U.S. Department of the Treasury (USDT) has published its so-called Derisking Strategy which primarily includes recommendations for supervisory authorities of financial institutions such as FinCEN, the Financial Crimes Enforcement Network, or FFIEC, the Federal Financial Institutions Examination Council, so as to de-motivate and de-incentivize the practice of derisking in the financial market. The key recommendations are briefly described below, following a brief description of the practice of derisking and the potential causes for such practice as outlined in the strategy.
Derisking refers to a general practice of limiting access to or refusing the transfer of payments by financial institutions without duly considering the risks posed by individual customers or groups of customers. The practice is primarily triggered by the need to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) obligations. The causes of derisking are manifold, so the strategy paper, ranging from inadequate resources to monitor customer accounts and compliance with AML and CFT regulations, to a lack of clarity in current regulations as to the obligations of financial institutions, to the harsh penalties that may be incurred in case of (unintended) violations.
Bearing these reasons in mind and the potential harm derisking may cause to the financial market, the USDT makes some high level recommendations of how derisking practices can be disincentivized, including the following, among others:
– The Treasury recommends a review of the current examination practices as regards AML and CFT compliance examinations of banks, building societies, and other relevant financial market participants to ensure consistency among examiners on the application of corresponding examination manuals.
– The Treasury recommends a review of the examination manuals again to ensure consistency and to apply a risk-based approach towards affected institutions. Adjustments should be made where ever needed to foster harmonization and clarity among examiners and examined institutions alike.
– The Treasury recommends to enhance the training requirements of AML and CFT examiners and to standardize examination schedules and procedures.
– The Treasury recommends to permit the sharing of examination findings between banks, intermediary money service businesses, and regulators so as to foster an understanding of the key AML and CFT safeguards and expectations in this context.
– The Treasury recommends to review the Bank Secrecy Act regulations and make targeted adjustments where ever needed to provide more clarity as to the expectations of the regulators to prevent money laundering.
– The Treasury recommends to support large institutions in their efforts to limit the practice of derisking, e.g. by improving national identity systems and the access thereto.
– The Treasury recommends to further explore technology that could enhance digital identification of customers.
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As these are only the key proposed recommendations, please review the strategy paper itself for more detailed, comprehensive information.