AUSTRAC has released new guidance regarding 'debanking’, a common problem affecting digital currency exchanges (DCEs) and Web3 businesses and one that has received increased attention in recent weeks as Binance's payments provider moved to severe ties and Commonwealth Bank applied new restrictions on crypto transactions.
The guidance states that ‘debanking’ or ‘derisking’ by financial institutions has raised concerns as it limits banking services to customers in certain industries. AUSTRAC believes that this approach, driven by factors such as commercial considerations, reputational risk, and regulatory risk exposure, can have a “devastating impact” on legitimate businesses and be counter productive in tackling financial crime.
The guidance notes that debanking reduces the effectiveness of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) framework, as it discourages transparency and may push customers towards unregulated channels.
Without access to the formal financial system, customers may seek out unregulated channels. The risk of debanking may cause some customers to provide financial institutions with less information about the true nature of their business activities, which limits transparency and increases risk.
The guidance reiterates AUSTRAC's risk-based approach to AML/CTF regulation, the role of financial institutions, and the considerations for businesses in need of banking services. It clarifies AUSTRAC's regulatory expectations for financial institutions when assessing and offering services to higher-risk businesses and emphasizes the importance of applying appropriate risk identification, mitigation, and management systems and controls to mitigate potential risks effectively. This ensures that financial institutions can maintain their compliance obligations while providing services to high risk sectors.
For the risk-based approach to be effective, AUSTRAC highlights that open and good-faith communication between financial institutions and their customers is crucial. Customers must be transparent with financial institutions about the nature of their business activities, enabling a comprehensive understanding of the risks involved. By fostering this communication, financial institutions can more effectively assess and mitigate risks, supporting the overarching goal of combating AUSTRAC’s paramount concerns of money laundering and terrorism financing.
The guidance specifically addresses remitters, digital currency exchanges (DCEs), and fintech companies, such as payment service providers. For financial institutions, the guidance encourages closer engagement and the implementation of systems and controls that are "objective and proportionate" to AML/CTF risks for the customer.
Similarly, the guidance encourages openness for higher-risk businesses in sharing information with financial institutions and a preparedness to demonstrate compliance with AML/CTF obligations.
AUSTRAC’s guidance is timely, in light of recent announcements by Westpac and the Commonwealth Bank limiting customer access to certain DCEs in an effort to tackle AML/CTF risk and scams. AUSTRAC’s guidance seemingly addresses mounting concerns over debanking generally, without directly pointing fingers or commenting on any particular case, noting that the question over whether to service a particular client will often be a commercial decision.
AUSTRAC’s message is clear: the practice of debanking high risk sectors is counterproductive in the fight against money laundering and terrorism financing. To combat the challenges posed by debanking, the guidance emphasises the importance of engaging with customers rather than disengaging due to perceived risks.
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