Report: How swinging regulatory penalties slow banks intermediation role

Financial Inclusion: CBN urges financial operators to diversify products
Indications have emerged that increased in regulation on anti-money laundering, which often attract imposition of fines and stiff penalties has slowed banks’ role in intermediation, especially cross-border transfers, which has affected banks in Europe, Africa most importantly, largest economy in the continent.
United Bank for Africa

Financial analysts, have however, described regulatory policies on money laundering and corruption, especially in Nigeria as merely reactive as against proactive in their oversight functions.
 Although, the latest report by the London-based Economist, stated that Eastern Europe, Latin America and the Caribbean were also affected, while accounting for arbitrary dropped by their Western correspondent banks that they relied on to clear dollar and euro transactions.
 The view, which was a banks-focused report titled, ‘The great unbanking1 – Swinging fines have made banks too risk-averse – It is time to rethink anti-money-laundering rules’, stated that swinging fines have made banks too risk-averse and left many genuine clients unserved.
 It specifically notes that regulatory pressures, rise in compliance costs and most of all, de-risking, are becoming a survival issue for banks, that it was time to rethink anti-money-laundering rules, adding that though the crackdown on money laundering activities was merited, some of its results have been perverse
 The report further noted that a crackdown on financial crime means global banks are de-risking with charities and poor migrants among the hardest hit. “The crackdown was merited. But some of its results have been perverse. Banks have pulled away from clients they fear might commit financial crimes and, therefore, regard as too dangerous to serve. Many have done so indiscriminately. Money-transfer firms, especially those handling remittances to poor countries, and charities that work in conflict zones, have been hit hard by this ‘de-risking”, it stated.
 The report added that the harm of stricter regulation goes wider than specific institutions, that apart from individual finance institutions getting rapped, there other are collateral damages, including legitimate clients who have dire need for money having their transfers delayed or their bank accounts closed
“A financial system that lets dirty money flow freely is a bad one. One that blocks clean money is even worse. “De-risking chokes off financial flows that parts of the global economy depend on. It undermines development goals such as boosting financial inclusion and strengthening fragile states. And it drives some transactions into informal channels, meaning that regulators become less able to spot suspicious deals,” the report explained.
Popular though it has become to bash banks, they have been acting rationally. The report however put the blame for the damage that de-risking on policymakers and regulators, who overreacted to past money-laundering scandals. “They issued dire warnings about the dangers of serving entire classes of client, such as money-transfer firms, and imposed swingeing penalties for infractions. No wonder banks dumped less-profitable clients tainted by the merest hint of risk.
 It stressed that banks deserve a new approach to financial regulation—one that accepts mistakes can be made in good faith. Multilateral institutions such as the IMF should do more to help the countries worst affected by ‘derisking’ to improve their financial oversight.
 Most important, banks that can show they have strong anti-laundering controls and have done their due diligence should get credit for that if an occasional illicit payment slips through. It equally sees financial technology as offering the prospect of filtering suspicious transactions from legitimate ones.
Meanwhile, financial analyst who commented on the development cited the case of the Economic and Financial Crime Commission (EFCC) barging into banks all in the name of looking for stolen funds. The explained that actions of interfering with the role of banks, which include safe-keeping and intermediation,” adding that banks are now afraid to take deposits from some perceived corrupt persons, thereby increasing the money outside the banking system.