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De-risking: When did we lose our minds and our way?

“People talking without speaking, people hearing without listening” *

With a nod to pop music, veteran John Byrne’s blog scans the anti-laundering and anti-terrorism world. John pierces silliness and inconsistency, and strongly believes in private-public partnership. With a nod to pop music, veteran John Byrne’s blog scans the anti-laundering and anti-terrorism world. John pierces silliness and inconsistency, and strongly believes in private-public partnership.

Singer-songwriter Paul Simon is a genius.

He knew in 1964 when he penned “The Sounds of Silence” that people do not listen to each other—or even to themselves.

That has not changed in 50 years … and is, in fact, much worse today.

If you even read newspapers you read the headline and assume that is the news. Policy debates are based on politics and pre-conceived notions.

When is the last time anyone has said, “I was wrong until I listened to your view and realized you were right”?

So what does this have to do with “derisking?”


When it’s time to say goodbye

Exiting banking relationships for risk-related reasons is as old as banking itself. We just never had a name for it before.

Credit, operational, or AML risk all need a corresponding response from the institution. The issue for all of us is whether those responses are standard and fair.

And we must also examine them carefully. Will they cause unintended, collateral damage?

The problem is proverbial mixed messages.

Or to be less than kind: We are just not listening to each other.

In AML, the earliest “victims” of derisking were (and remain) money service businesses. It should be noted that not all MSBs are victims. But well-run institutions with strong AML programs do get lumped in with MSBs that skirt the compliance world.

Frankly, many banks were warned about providing services to MSBs so the logical response was exiting such relationships or not providing services in the first place.

Where are we now?

Here is Treasury Assistant Secretary Daniel Glaser’s recent comments on MSBs, in his Treasury website blog, “Treasury’s Work to Support Money Transmitters”:

“Treasury is working with the federal banking agencies to update guidance to make clear that banks should not be treating all money transmitters as high-risk and that with sufficient controls, banks can effectively manage high-risk money transmitters”

While it would appear to be a positive move for the bank-MSB relationship, every single AML professional reading Glaser’s comments is thinking:

“We’ve been down this road before. Call us when the guidance is out and actually results in regulatory deference.”

What BSA people are saying about “de-risking”

We just returned from our ACAMS AML and Financial Crime Conference, where we had a record-breaking 2,000 participants. De-risking was discussed on many panels.

• Law enforcement speakers cautioned that traditional banks exiting certain customer relationships would push those entities underground or to institutions ill-equipped to manage risk.

• Regulators reminded compliance professionals that simple de-risking harms the economy. However …

• Many in the private sector warned that they were getting second-guessed on their risk decision making, even with what they considered to be a robust risk assessment process and follow-up compliance responses.

• Added to all of that was a poll we took during the conference. ACAMS asked “Does your financial institution have a specific de-risking policy?” Respondents’ answers: 26% said yes and 26% said no, while the rest said they would exit a high-risk account relationship that cannot be effectively managed.

So it is clear that this area is anything but clear. 

Confused yet? Just wait.

Conflicting federal signals

A recent press account quoted OFAC Director Adam Szubin telling an audience at the SIBOS conference:

“It is not at all uncommon for me to hear that a compliance overhaul was done and certain customers, certain lines of activity were deemed too risky to persist. That may be exactly the right response to a situation where the risk outweighs the benefit.”

Wait, what?

To be fair, or maybe more confusing, Szubin distinguished the above comment from something he calls “extreme derisking.” That term seems to cover a broad swath of a response to complete categories of entities when the risk really relates to a subset of that group. Szubin added that the government wants to help the financial sector “avoid unnecessarily broad retreats.”

Sounds like a rationale response. But no way can it work without a comprehensive dialogue between the private and public sectors.

You will notice that I didn’t even discuss “Operation Chokepoint” and the mass hysteria that caused.

So where are we?

You cannot expect the financial sector and the hardworking AML professional to be able to provide appropriate advice to their institutions regarding risk with all the uncertainty swirling around.

Reputation risk, possible personal liability, threats of more and higher fines all do not lend themselves to a simple solution.

We need to speak and listen.

John Byrne

John Byrne is Senior Advisor to the Advisory Board  of the Association of Certified Anti-Money Laundering Specialists and Vice-Chairman of AML RightSource. ACAMS, with more than 70,000 members, develops anti-money laundering/sanctions/financial crime detection programs and certifies specialists in financial and non-financial businesses and government agencies. Byrne is a nationally known regulatory and legislative attorney with over 30 years of experience in a vast array of financial services issues, with particular expertise in all aspects of regulatory oversight, policy and management, anti-money laundering (AML), privacy, and consumer compliance. He has written hundreds of articles on AML; represented the banking industry in this area before Congress, state legislatures, and international bodies such as the Financial Action Task Force (FATF); and appeared on CNN, Good Morning America, the Today Show, and many other media outlets. Byrne has received a number of awards, including the Director's Medal for Exceptional Service from the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and the ABA's Distinguished Service Award for his career work in the compliance field. His podcast, "AML Now" (on ITunes) received a 2017 Communicator Award for hosting from the Academy of Interactive and Visual Arts. Byrne's blog on AML and Fraud on received a Gold Hermes Award in 2016. John received the ACAMS Lifetime Service Award in September. Byrne can be e-mailed at [email protected]; and don't miss John's updates on Twitter! You can find him at @jbacams2011

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