The term "de-risking" refers to actions taken by a financial institution to terminate, fail to initiate, or restrict a business relationship with a customer or category of customers rather than manage the risk associated with that relationship.
The federal Bank Secrecy Act and related anti-money laundering (BSA/AML) regulations require financial institutions to collect and retain various records of customer transactions, verify customers' identities, maintain anti-money laundering programs, and report suspicious transactions.
Some nonbank financial institutions and nonprofit charitable organizations, sometimes referred to as "money services businesses" or "money transmitters," transfer funds to recipients in foreign countries, including areas experiencing humanitarian crises, and require bank accounts and bank services to facilitate these transfers. However, when transfers occur to recipients in countries at high risk for money laundering or terrorist financing, some financial institutions may be reluctant to provide these services.
The 2021 federal National Defense Authorization Act (NDAA) directed the United States Government Accountability Office (GAO) to analyze and report on de-risking, including drivers of de-risking efforts and alternative means for financial institutions to handle transactions or accounts for high-risk categories of clients, which the GAO has done. The NDAA also directs the United States Department of Treasury (Treasury), in consultation with federal and state regulators, to develop a strategy to reduce de-risking and related adverse consequences.
Relatedly, the Washington Department of Financial Institutions (DFI) provides regulatory oversight to money transmitters, banks, and credit unions in the State of Washington. The DFI has developed regulatory guidance to clarify expectations for financial institutions offering account services to affected money transmitters, and forwarded such guidance to federal financial regulators for review and comment.
The Legislature requests the United States Congress to pass and the President to sign legislation implementing the strategies and recommendations resulting from: (1) directives to the GAO and Treasury under the NDAA, and (2) review of the DFI's regulatory guidance for depository institutions. The legislation should also include:
The Legislature further requests that the President direct federal regulators to work with the DFI and stakeholders to support efforts to develop new and creative solutions to improve banking access for local and community-based money transmitters.
(In support) According to BSA/AML laws and regulations, banks are required to report transactions that seem even a little bit suspicious. Rather than go through the hassle of reporting every account that could be set up with an individual or business that could involve refugees from a country that happens to be on a terrorist list, the bank would prefer to not even take that risk and not offer a bank account. This has been a real problem, creating a lack of access to banking services for many immigrants and refugees. When refugees come here, they want to remit funds they earn here back to support their families, but oftentimes are unable to do that because the money transmitters involved in the chain of custody process are not allowed to have bank accounts or bank services. De-risking puts smaller money transmitters out of business and has also resulted in local businesses that may be run by refugees losing their bank accounts.
The federal government understands this is a problem and Congress has been aware and trying to solve it. A study was commissioned under the NDAA acknowledging that this is a problem and requiring the GAO and Treasury to come up with a solution, but they have not yet. This joint memorial is urging them along, because this issue can only be handled from the federal level.
(Opposed) None.