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From Banking and Finance Law Daily, February 27, 2018

GAO releases report on derisking in the Southwest border area

By Nicole D. Prysby, J.D.

The Government Accountability Office has released a report on the impact of derisking on access to banking services along the Southwest border region. Because the branch closures and service limitations in that region could be linked to derisking behavior, the GAO recommends that regulators perform a thorough review of Bank Secrecy Act/Anti-Money Laundering rules to determine whether changes to the rules are needed to ensure access to banking services (GAO-18-263).

The Southwest border region has a high volume of cash and cross-border transactions, which can lead to more intensive account monitoring and investigation to meet BSA/AML requirements. Some Southwest border residents and businesses have reported difficulty in accessing banking services in the region. GAO was asked to undertake a review to determine if the access problems are due to derisking, the practice of banks limiting certain services or ending their relationships with customers to avoid perceived regulatory concerns about facilitating money laundering.

Results of investigation. The GAO reviewed data from 2016 on suspicious activity reports (SARs) and found that the average number of SARs filed (per billion dollars in deposits) in the Southwest border region was two and a half times the number for high risk counties outside the region. The survey also found that 80 percent of banks in the region had terminated accounts for BSA/AML risk reasons and 80 percent limited or did not offer accounts to customers who were considered high risk for money laundering, because those customers drew heightened regulatory oversight. In addition, money-laundering related risks were a more important driver of branch closures in the region than elsewhere.

The GAO concluded that some account terminations and limitations were consistent with BSA/AML purposes, but some raised concerns about derisking, such as the practices of denying accounts to money service businesses. The account terminations and limitations, along with branch closures, have raised concerns that Southwest border communities will suffer from reduced economic growth and lack of access to banking services.

Recommendations. The GAO noted that although regulators have produced some guidance on derisking, they have taken few steps to determine how banks’ regulatory concerns and BSA/AML compliance efforts may be influencing banks to engage in derisking or to close branches. The report recommends that the Financial Crimes Enforcement Network, Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency should jointly conduct a retrospective review of BSA/AML regulations and their implementation. The review should focus on the extent to which banks’ regulatory concerns may be influencing their willingness to provide services. The FDIC, Fed, OCC, and FinCEN should then revise the BSA regulations to ensure that BSA/AML regulatory objectives are being met in the most efficient and least burdensome way.

MainStory: TopStory BankSecrecyAct OversightInvestigations

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