The European Banking Authority (EBA) says banks in the European Union are blocking asylum seekers and other customers in misguided attempts to adhere to anti-money laundering (AML) regulations.
As Reuters reported Wednesday (Jan. 5), banks have grown much more cautious as regulators around the world bring the hammer down on ineffective know-your-customer (KYC) systems, leading some customers to say they have been unfairly left out of the system.
In a statement published Wednesday, the EBA said its research shows this “de-risking” by banks and payment companies takes place throughout the EU, and seems to particularly impact nonprofits and asylum seekers.
Banks engaged in de-risking bar some customers because their profile indicates they could have ties to money-laundering or terror financing.
See also: EU Aims To Create Anti-Money Laundering Authority
The EBA also said its findings show that “de-risking has a detrimental impact on the achievement of the EU’s objectives, in particular in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.”
The authority has issued instructions for national regulators and banks on how to properly oversee money laundering risks, and said that it will check back with those regulators to see what steps they are taking to deal with unnecessary de-risking before reporting next year.
The European Commission put forth proposals last year to establish an organization called the Anti-Money Laundering Authority (AMLA), along with other steps to help end unwarranted de-risking.
If approved, the AMLA would begin operations in 2024, and gain the ability to supervise some cross-border financial firms and impose levies on companies that break money laundering rules by 2026.
However, the EBA says the Commission can take things further in the fight against needless de-risking by clarifying situations in which a bank account with basic features should be closed or rejected.
Read more: Danske Bank Rebuked Over Lacking Money Laundering Controls
The Commission’s heightened AML efforts came about in the wake of the money laundering scandal at Danske Bank of Denmark.
That scandal involved the apparent payment of $235 billion in transactions deemed suspicious at a small branch in Estonia between 2007 to 2015. The fallout from that investigation led the bank to slash hundreds of jobs.
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