In anti-money laundering practices, it is important to strike a balance between managing risks and ensuring a level financial playing fieldThe Financial Supervisory Authority (FIN-FSA) has found that there has been an increase in the number of rejections of customer applications and terminations issued by banks to legal entities. The FIN-FSA does not require banks to be exposed to no money laundering and terrorist financing risks at all in their activities. In managing money laundering risks, it is important to strike a balance between how to avoid and manage risks while ensuring a level playing field in society for financial activities and access to essential services.
In its thematic assessment, the FIN-FSA found that there was a significant increase in the number of rejections of customer applications and terminations of existing customer relationships with regard to legal entity customers such as companies, associations and foundations during the period examined, 2019-2021.
The thematic assessment was based on, among other things, numerical data reported by banks on rejections and terminations and on the main justifications for these. From these alone, however, it cannot be deduced directly that banks in Finland would engage in the large-scale refusal or termination of customer relationships with high-risk customers or entire customer groups without assessing the risks involved on a case-by-case basis. The assessment also revealed that there are often multiple reasons for rejecting and terminating customer relationships:reputational risk and the fact that the returns obtainable through high-risk customer relationships may be lower than the costs of risk management are also often considered in decision-making.
“A bank may assess the risks on a case-by-case basis but, if its risk appetite is very low, this may, in the worst case, result in the elimination of all risky customers. In that case, the situation may, from the perspective of the availability of services, be just as if the bank were to restrict customer relationships with customer groups that it categorically assesses to be high risk without a case-specific assessment,” says Pekka Vasara, Head of Division, FIN-FSA.
The FIN-FSA also reminds banks to comply with equality legislation and urges them to promote the realisation of equality in all service provision. In addition to managing the risks of money laundering and terrorist financing, it is important for banks to assess carefully the impact of their actions from the perspective of financial inclusion. The assessment must take into account what the impact on the position of a customer or customer group will be if they do not have the opportunity to use certain products or services. The objective would be to strike a balance between how, on the one hand, to avoid and manage risks and, on the other hand, to secure a level playing field for financial activities and access to essential services.
The FIN-FSA does not require banks to be exposed to no money laundering and terrorist financing risks at all in their activities. Banks must, however, have appropriate procedures to identify, assess and understand the money laundering and terrorist financing risks to which they are exposed in their activities and to take measures proportionate to the risks.
It is important for banks to prepare a long-term policy regarding their own risk appetite, and that the scope and detail of this policy should be proportionate to the size of the bank as well as the nature and scope of its operations. It is also essential to ensure that operational planning and decision-making also reflect in practice the risk appetite specified by the bank.
In its supervisory work, the FIN-FSA monitors whether supervised entities’ customer due diligence procedures are appropriate and how a risk-based approach is realised in practice in such procedures.
- Report:Thematic assessment of unwarranted restriction of banking services for high-risk customers (pdf, in Finnish)
- Supervision release 15 December 2022 (in Finnish)
- FIN-FSA blog 18 August 2022 (in Finnish): Ei tule ampua tykillä kärpästä
- FIN-FSA blog 15 December 2020 (in Finnish): Tehokas rahanpesun estäminen: riskillisistä asiakkaista kokonaan eroon vai riskien oikeasuhtaista hallintaa?
- FIN-FSA blog 1 June 2020 (in Finnish): Rahanpesun ja terrorismin rahoittamisen riskien arviointi haaste valvojalle ja valvottaville