AUSTRAC statement 2021: de-banking

The issue of de-banking is a complex global problem. Over the past decade, the range of businesses impacted by a loss or limitation of access to banking services has expanded. Money transfer (remitters), digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses are disproportionally facing bank account closures. Banking services in the Pacific region previously enabled through Australian banks are also at risk. We understand, there are multiple drivers both domestically and internationally including:

  • commercial considerations, for example the profitability of providing banking services to high-risk customers 
  • reputational risk 
  • uncertainty associated with the business model of customers, particularly emerging businesses  
  • broader environmental, social and corporate policy considerations of institutions 
  • expectations of overseas correspondent banks in relation to Australian institutions 
  • compliance with sanctions requirements
  • compliance with anti-money laundering and counter-terrorism financing requirements. 

The effect of de-banking of legitimate and lawful financial services businesses can increase the risks of money laundering and terrorism financing and negatively impacts Australia’s economy. For this reason, AUSTRAC continues to discourage the indiscriminate and widespread closure of accounts across entire financial services sectors.

Like the banking sector, new and emerging financial services businesses, money transfer and not-for-profit businesses facilitating overseas transactions and new payment models are at risk of being exploited by criminals. Like the banking sector, these businesses provide valuable services to communities in Australia and internationally and contribute to Australia’s economic prosperity. These businesses vulnerable to exploitation should not automatically have their accounts closed simply to avoid managing risk.

At the same time responsibility to manage risks posed by criminals does not only rest with the banks. AUSTRAC expects businesses operating in these susceptible sectors to understand and meet their anti-money laundering and counter-terrorism financing and other regulatory obligations. These sectors must improve risk management and ensure they have appropriate systems in place to help them identify, track and disrupt criminal exploitation of the financial sector. Such efforts strengthen and protect their own businesses and demonstrate a strong willingness and culture of compliance to banks they seek to partner with.

Although the decision to close an account may remain a necessary risk control, AUSTRAC considers with appropriate systems and processes in place, banks should be able to manage high risk customers, including those operating remittance services, digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses.

AUSTRAC expects banks and all regulated businesses to adopt a case by case approach to managing ML/TF risks. This expectation extends to the importance in continuing to assess the particular risks relating to their business customers in line with the risk-based approach. AUSTRAC also encourages banks to engage with businesses on measures that they could take both immediately and in the longer term to meet banks’ internal risk standards.

The loss or limitation of access to banking services can have a devastating impact on individuals and their businesses. The closing of accounts in entire industry sectors leads to de-banked businesses being less open about the nature of their business relationships with banks. This increases the difficulty to distinguish lawful activity from unlawful activity which can have consequential impacts on law enforcement and our efforts to uplift capability and understanding. It also requires de-banked businesses to change financial institutions frequently, which leads to banks having a less sophisticated understanding of expected transaction types and volume due to limited historic data. Contrary to managing and mitigating risk, these activities lead to criminal activity moving underground and compounds the risks criminals pose to Australia’s financial system and the community.

AUSTRAC remains committed to financial inclusion and will continue to contribute to broader efforts across government, including from the Council of Financial Regulators, to support universal access to financial services.