The European Banking Authority’s Opinion on De-Risking
The European Bank Authority (‘EBA’) encourages authorities to engage more actively with institutions regarding de-risking.
The following key drivers of institutions’ decisions to de-risk customers were identified:
Money Laundering or Terrorist Financing (‘ML/TF’) risks exceed institutions’ ML/TF risk appetite and give rise to legal as well as reputational risks.
Lack of expertise by institutions in specific customers’ business models.
Cost of compliance.
The EBA notes that while the impact of de-risking on different categories of customers varies, de-risking can have a detrimental impact on the achievement of EU’s objectives, therefore the EBA considers unwarranted de-risking to be a significant issue across the EU, with a potentially significant adverse impact on the EU financial system’s integrity and stability.
De-risking occurs across all Member States and sectors and affects a great variety of customers of financial services in the EU, threatening the stability of national financial systems. Considering this the EBA advises that financial services authorities and the co-legislator ensure unwarranted de-risking is addressed.