“There is a risk of setting a ‘know your customer’s customer’ standard for the whole global system,” Anders Borg, former Swedish Finance Minister, has warned. Mr Borg, currently Chair of the World Economic Forum’s (WEF) Global Financial System Initiative, has called for a rethink of anti-money laundering (AML) rules, which threaten to hinder access to financial services in some of the most marginalised parts of the world, undermining efforts to create a more equitable global financial system.
The ramping up of regulatory attention on AML has resulted in a trend of “de-risking” in recent years as banks have, en masse, exited jurisdictions and sectors perceived as being more exposed to money laundering and terrorist financing. This trend has continued in spite of statements by the Financial Action Task Force (FATF) that the avoidance (rather than the management) of risk is antithetical to its recommended risk-based approach.
The challenge for the financial sector is clear: to balance the twin objectives of securing greater financial inclusion and maintaining the integrity of the financial system. However, these two objectives need not be contradictory but may potentially be mutually reinforcing. For example, in the remittance sphere it is held that reducing the cost of money transfers can simultaneously increase their frequency (the effect being to improve financial literacy) and reduce their average value (thereby reducing ML risk).
Achieving these types of “win-wins” will depend upon global standard setters and regulators working with industry to take a “joined up” approach to the problem, based upon an appreciation that the maintenance of financial integrity and the improvement of financial inclusion are essentially two sides of the same coin. Indeed, the regulatory dialogue around reconciling financial inclusion and integrity should be underpinned by an understanding that greater financial inclusion has the potential to support financial integrity, for example through improving transparency within jurisdictions in which informal economies have previously provided a dominant channel for financial transactions.
However, as long as requirements are perceived as excessively risky or costly to administer, the attraction of de-risking may persist.
Learn more about KYC and CDD with the ICA Advanced Certificate in Practical Customer Due Diligence. Available to study in London, Jersey and Guernsey http://www.int-comp.org/practical-cdd.
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