EVANSTON, Ill.—Anti-money laundering (AML) regulatory concerns are causing large banks to reduce ties with banks in other countries, inadvertently shutting thousands of small businesses out of the global financial system, according to a new report.
Software provider Accuity’s research has shown a 25% drop in global correspondent banking relationships since 2009 due to “de-risking,” Mondaq.com reported, noting that this re-disking is being driven by U.S. and European banks, and has left businesses in some geographic regions without access to the international financial community.
Since the financial crisis of 2008 regulators have imposed greater transparency and liquidity requirements as well as increasing enforcement of AML regulations. Fines peaked at $10 billion in 2014, "compounding the challenges banks face in high-risk geographies," Accuity stated in its report.
Accuity added, "In this climate, the threat to banks of doing business in these geographies potentially outweighs the benefits of services to their clients, even if there may be good business opportunities to pursue," Mondaq.com reported.
This has led many banks to withdraw from correspondent relationships, leaving businesses in the affected regions struggling to finance their operations. Local banks are forced to use non-regulated, higher cost sources of finance, exposing them to "nefarious actors and shadow banking,” stated Accuity, according to the Mondaq.com report.