In our very first post, we explained the backstage of the banks’ Customer Due Diligence & Know Your Customer rules and how their too rigid implementation keeps far more customers out of the system than it should. It’s time for the second half of the story.
Well, the little-known fact is that even banks appear to have a hard time understanding exactly how rigorously they need to stand guard over their front doors. And to be on the safe side, they overdo it, closing the door in many customers’ face. Just in case.
At least there’s a somewhat reasonable explanation as to why this is happening.
There was a letter written by the British Banking Association to The Money Laundering Review in 2011. In the letter, on behalf of 223 banking members from 60 countries that the BBA was representing at the time, Catriona Shaw, the Director Financial Crime expressed concern about the UK Government’s financial crime strategy.
Although the letter was written a little more than 2 years ago, the problem still exists today. In a word, the main issue seems to be the Government’s inconsistent financial crime prevention strategy, or more accurately, its implementation.
The one-size-fits-all solution isn’t quite cutting it
Not all financial institutions are the same. They offer different services, have different risk levels and cater to the needs of different target groups in various markets. As explained by HR Revenue & Customs, the financial institutions have therefore the right to carry out their own risk assessment based on these factors and general Government guidelines. By doing so, they can implement their own standards to prevent money laundering while still ensuring good access to their services. However, the Government officials supervising the financial institutions still carry the ’tick-box’ mentality.
This means that despite the right to carry out their own risk assessment, the financial institutions are still expected to adopt the same standards as everybody else for a Government official to be able to ’tick all the boxes’. In turn, this forces some of the institutions to impose tighter regulations and thereby deny access to the customers who would otherwise be completely eligible for their services.
At the same time, the Government is pointing fingers at the financial institutions for not understanding their obligations under the Regulations and therefore „unfairly [excluding] legitimate customers.“
Winds of change ahead?
A bill published by the UK Government in July 2012 to transform and strengthen financial regulation in the United Kingdom set out, among other things, to “[empower] authorities to look beyond ‘tick-box’ compliance and [foster] a regulatory culture of judgment, expertise and proactive supervision.“
As always, changing the course of a big ship takes some time. They started turning it in 2012. Let’s hope for some results in 2014.