Derisking Is Risky

Dateline: Woking, 9th January 2024.There has been much media comment, in the U.K. and elsewhere, about the issue of banks either denying accounts to people or closing the accounts of existing customers. In fact it’s taken on the appearance of something of a moral panic in recent times. What is slightly puzzling to me is that people are getting angry with the banks when the banks are responding rationally to the economic incentives set for them by their regulators. If people want to get angry about this stuff, they should be getting angry with the government and the Financial Action Task Force and the various people responsible for the regulations!ShareSuspicious ActivitiesWe’ve all heard stories about friends or colleagues finding them, or their kids’ sports club or their elderly parents or their cousin’s small business, getting a letter from the bank saying “sorry, your account is being closed, there’s no point calling us because we can’t tell you why”. These are stories about what banks refer to as “exiting” or “de-risking” but, as an very good piece in the New York Times points out, this isn’t about banks getting tough on people who bounce checks: this starts with regulators and then trickles down through bank compliance departments and on to your branch manager (or managerbot).Subscribe nowOne of the reasons for this is that banks are required file a “suspicious activity report” (SAR) when they see transactions like unexpectedly large cash transactions or wire transfers with banks in high-risk countries. According to…Derisking Is Risky