This Week in AML

De-risking is A Broader Issue than Just Non-Profits

This week, Congresswoman Maxine Waters, Chairwoman of the House Financial Services Committee sent a letter to President Biden about financial access for Caribbean nations and particularly the harmful phenomenon of bank de-risking.  The letter recognizes that access to financial services is a key building block for creating and sustaining an effective economy. The letter references a recent report by the Atlantic Council. John and Elliot discuss the focus of the letter, how de-risking and financial access is a serious concern, not just for charities and non-profits, but for entire nations, and some of the solutions that can be instituted to reduce the impact of the problem.



De-risking is A Broader Issue than Just Non-Profits TRANSCRIPT


Elliot Berman: Hi, John, how are you this week?

John Byrne: Hey, Elliot. I know we talked about this offline, but sadly, a couple of weeks ago, when we did this, we had to mention our colleagues and Buffalo and how obviously everybody's suffering. And once again, it's happened again. I'll let a lot more intelligent people talk about this, but I just want folks to know that we are also paying attention to it.

Horrific things occur in this country because of the lack of political will. And I'll just leave it that way. But, the bottom line is, you know, we are, we are just, we are just hoping for improvement. I'll just leave it at that, that way.

Elliot Berman: Yeah. As you know, both of us are pretty good at having words, but it isn't easy. Both for this particular event, but just the continued string of events to really find words to adequately describe what happened and describe the frustration that we as a nation have not figured out how to fix it. 

John Byrne: yeah, I, the best thing I would say is if people haven't already watched and it's not very long, the coach of the golden state warriors, Steve Kerr before, the last game they played a couple of days ago.

Just watch it three or four-minute set of comments. I'll just leave it at that. It was just not just articulate. It's so spot on. I think that's probably the best way to describe how most of us are feeling. 

Elliot Berman: Yes.

John Byrne: I agree with you. Hey, so a couple of things we had some balls in the air this week to figure out what we wanted to talk about, but I wanted to go back to an issue that we've discussed many times, and obviously, we've been involved in several projects over the past number of years, and that's the broad concept of de-risking.

And, I saw something this week that we've talked about a little bit offline, and that is a letter sent by the chairwoman of the committee on financial services in the house, Maxine Waters, to the president because there's a summit of the Americas that's coming up in June. And she took the time in a letter to talk about her recommendation.

That there'd be a priority issue added to that. If it wasn't already on the agenda, next is financial access and inclusion. And we both talked about de-risking or lack of access has impacted humanitarian groups, but the focus of Chairwoman Waters's letter is the impact that it's having in the Caribbean nations because of correspondent banking concerns.

And I thought that's also a very important part of that. I know you saw that, as well, when she sent that.

Elliot Berman: I did. And I agree with you. One of the big things that it calls out is that de-risking is an issue across many parts of our financial systems. And this part of the regional economy, these Caribbean Central American nations are another element where organizations and financial service providers certainly feel that the risk tolerance they have doesn't include for a variety of reasons, some of which have to do with sort of regulatory expectations or regular prior regulatory actions, not necessarily about against that financial service provider, but just in the space.

John Byrne: Right. And several of the themes mentioned in the letter that caused this, besides what you've just referenced, are well known to our community. So they call it an unfortunate mix of potential regulatory penalties maturing AML laws lingering. They often say inaccurate, negative perceptions we would think is fair and low bank profits.

But I think one of the things that struck me as important to highlight was they mentioned the Atlanta council report in March on the issues in the Caribbean, which I'll reference in a second. But part of the focus of the house committee that I thought was important to reference is, providing technical assistance and supporting a consortium bank and pilot project.

I think that's a great idea. See how it works, creating programs to increase small and medium-sized banks to offer correspondent banking services, which should be something that I know some of our clients would be interested in learning about. And then here's what the focus for me level setting us and regional examiner understanding of AML.

We can't emphasize that enough for a while, and I hate the jargon of level-setting. I understand the point that we have believed for a long time, and our clients have believed for a long time. That part of the main drivers of de-risking is, frankly, the changing of regulatory expectations and not understanding what is acceptable risk mitigation.

So I think referencing that is extremely important. And as I said, she also mentioned a March report from the Atlantic Council in the letter. And if folks haven't had the chance to read that yet, it's on their website. It's entitled financial de-risking in the Caribbean, the US implications, and what needs to be done.

And there's a financial inclusion force that is referenced in there. I would say that there are also some important recommendations in that report that you should take a look at. They also talked about some of the issues, and they also asked the treasury about what they call work, a mechanism that standardizes compliance requirements and has trading components.

And I think you connect that with working with examiners. You might have some potential improvements. At least that would seem useful.

Elliot Berman: Yes. I think all of those things raise the point that rather than just continuing to de-risk, there are solutions or things that can be done. Manage the risk open the area, the number of players in the space, by having, you know, banks that have not necessarily done correspondent banking in the past be involved.

And, of course, the regulator issue would be all of those ways to manage this problem or do something about it, instead of just making it bigger and bigger.

John Byrne: Yeah. And you know, we know what happens when you de-risk in the humanitarian space. Still, I don't think there's as much understanding and the report, and what the committee is doing is focusing that understanding on correspondent bank impacts.

Cause they talk about how it will obviously impact the tourism trade—things like improvements to water quality. I mean, there are so many things that if you don't have funny, access for these institutions in that region. You know, they're going to have difficulty in protecting against crime, all sorts of things where our monies are so important.

The reference, remittances, you know, how important that is to help the working-class populations to access the US dollar. So there's a whole host of things. This is not new to you and me, but I think it's important that we look at it as we try to tackle inclusion and access. Clearly what, we've been looking at humanitarian and charities and understanding the correspondent bank dilemma that's been going on.

I would imagine that this will be on the agenda for the summit. And obviously, the banking committee has done quite a bit of work in that space.

Elliot Berman: Yes. And we'll link in our post on our website. We'll link to the Atlantic Council report, which is a worthy read, and also to Chairman Waters's letter, and it's a space we recommend people continue to pay attention to for those of you who are at, in short, financial institutions to the extent that when the regulators are in your institution for an examination or just a meeting. If he can get things like this on the agenda and do some education, I know many of you have tried to do. If we can't get a level set in the examiner agency level, maybe we can do it one by one.

John Byrne: That's right. Yeah. And I would just say going forward, Elliot, as we're recording this afternoon, there's a webinar on sanctions that I know people are going to want to watch the recordings of.

We're very excited about having our colleague, Tim white, moderate with two experts. We were able to post an interview. I did with Jamal El Hindi, the former Deputy Director of FinCEN. Who's now at Clifford Chance. I think you're going to find that compelling as well. And we have a number of other things in the pipeline coming up in the next few weeks.

Elliot Berman: Yeah. Our June webinar will be on June 23rd at 1:00 PM, Eastern time for the live stream, and the topic is customer risk and rating models. So I think that would be an interesting one as well. So everybody, have a great weekend. If you're in the US long weekend. John, I'll talk to you next week.

John Byrne: Thanks, Elliott. Stay safe. Talk to you soon.

Elliot Berman: Bye-bye.