On April 25, 2023, the U.S. Department of the Treasury issued the 2023 De-risking Strategy, as mandated by Congress in the Anti-Money Laundering Act of 2020. The Strategy examines the phenomenon of financial institutions de-risking and its causes, and it identifies those greatest impacted. In addition, it offers recommended policy options to combat it.
According to the Treasury’s release, de-risking occurs when financial institutions terminate or restrict business relationships indiscriminately with broad categories of customers rather than analyzing and managing the risk of those customers. De-risking negatively affects the financial system by driving financial activity out of the regulated financial system, hampering remittances, preventing low- and middle-income segments of the population from efficiently accessing the financial system, and preventing the unencumbered transfer of humanitarian aid and disaster relief.
The Treasury conducted extensive consultation with the public and private sector to understand the root cause and negative impacts of de-risking. The strategy found that profitability is the primary factor in financial institutions’ de-risking decisions. It also highlights that profitability is influenced by a range of factors, such as a financial institution’s available resources and the cost of implementing AML/CFT compliance measures and systems commensurate with the risk posed by customers. The Department came up with concrete recommendations on how to promote consistent regulatory expectations, provide better incentives to U.S. banks to avoid de-risking, and to advance public and private engagement and cooperation at home and abroad, as reflected in the strategy/
Read the Treasury's full release here.
The 2023 De-risking Strategy can be found here.