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A Crackdown on Financial Crime Means Global Banks Are Derisking (The Economist)
July 8, 2017
From the article:
Strict new rules on capital and liquidity after the financial crisis have tilted the cost-benefit balance away from global banks’ least-profitable clients. But another cause of Latvia’s travails is “derisking”: banks dropping customers in places or sectors deemed to pose a high risk of money-laundering, sanctions evasion or terrorist financing. Though correspondent-banking traffic has continued to rise, banks in small or poor countries are increasingly shut out. The number of correspondent-banking relationships fell in all regions between 2011 and 2016, according to a survey of banks and payments data published on July 4th by the Financial Stability Board, a group of international policymakers (see chart 1). Worst-hit was eastern Europe, which saw a decline of more than 20%. The number in the Caribbean fell by around 10% in 2016 alone. Money-transfer firms and charities have also been hit. Big banks have “unbanked everyone from porn actors to pawnbrokers”, says a regulator...
Better, cheaper compliance should allow banks to take back some of the clients who were ditched because they were not profitable enough to outweigh the risk, says Vijaya Ramachandran of the Centre for Global Development, a think-tank. About 3,700 of the banks that are members of SWIFT now use the payment-messaging system’s data registry to collect required information about the banks for which they act as correspondents, thus cutting compliance costs. Takis Georgakopoulos of JPMorgan Chase, the largest clearer of dollar transactions, holds out hope for the blockchain technology behind bitcoin, a digital currency. This encodes a record of valid transactions with time stamps, which can be a cheap, easy way to verify customers.