De-risking refers to the practice of financial institutions terminating or restricting business relationships with entire categories of customers, sectors, or regions perceived as high-risk for money laundering, terrorist financing, or sanctions violations.
While intended to reduce exposure to compliance and reputational risks, de-risking can also have negative consequences, including financial exclusion and disruption of legitimate trade.
De-Risking
The Financial Action Task Force (FATF) defines de-risking as the practice of financial institutions terminating or restricting business relationships with entire categories of clients or customers to avoid, rather than manage, money laundering and terrorist financing risks. FATF has cautioned that this practice can undermine financial inclusion and shift transactions into less regulated channels.
Why De-Risking Matters In AML Compliance
De-risking reflects the tension between strict AML compliance and financial inclusion:
Compliance Pressure: Institutions de-risk to avoid penalties from regulators such as the FCA, FinCEN, or OFAC.
Operational Costs: Enhanced due diligence for high-risk clients (e.g., correspondent banks, NGOs, money service businesses) can be resource-intensive.
Unintended Consequences: Exiting clients entirely can deny access to legitimate customers, damaging economies and reputations.
The World Bank has highlighted that de-risking particularly affects cross-border payments, remittances, and correspondent banking services,
Key Drivers Of De-Risking
Financial institutions may choose de-risking strategies due to:
High Regulatory Fines: Banks fear multimillion-dollar penalties for compliance breaches.
Reputational Risk: Links to money laundering or sanctions breaches can harm public trust.
Complex Sanctions Regimes: Managing compliance across multiple jurisdictions creates challenges.
Cost Of Enhanced Due Diligence: Smaller clients or regions may not justify the compliance costs.
Regulatory Response To De-Risking
Regulators are increasingly critical of de-risking as a blanket strategy.
In its most recent guidance, FATF reiterated that its Standards “do not envisage de-risking, or cutting-off entire classes of customers,” but instead require a risk-based approach.
According to the FATF’s latest monitoring report, its Standards do not envisage “cutting-off entire classes of customers”; instead, they call for an approach that distinguishes risk levels and applies mitigation proportionately.
The IMF warns that widespread de-risking strategies pose risks to global financial stability, particularly in emerging markets, where such practices may reduce access to financial services and disrupt correspondent banking and remittance channels.
The Future Of De-Risking
Future approaches are likely to emphasise technology-driven solutions that allow firms to manage risk more precisely. Tools such as Customer Screening, Transaction Monitoring, and Dynamic Risk Scoring can help firms maintain compliance without resorting to wholesale client exits.
Institutions that adopt data-driven and risk-based compliance frameworks will be better able to manage high-risk relationships without unnecessary exclusion.
Strengthen Your AML Framework And Avoid Unnecessary De-Risking
Financial institutions can reduce exposure to fines while supporting financial inclusion by adopting advanced compliance tools and a risk-based approach.
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