Sometimes compliance and public policy collide.
For example, financial institutions restricted accounts to certain types of business because they drew heightened BSA/AML oversight—even though those account would best serve consumers.
During a session at the 2018 CUNA BSA Certification Conference in Louisville, Ky., Jim Vilker, vice president of professional services, CU*Answers, outlined recent U.S. Government Accountability Office report that found many U.S. Southwest border residents were losing access to banking services because of "derisking" and branch closures.
Derisking is the practice of financial institutions limiting certain services or ending their relationships with customers to, among other things, avoid perceived regulatory concerns about facilitating money laundering.
GAO surveyed a nationally representative sample of 406 financial institutions, which included 115 financial institutions that operate in the Southwest border region.
The survey found that the collective evidence gathered indicates that BSA/AML regulatory concerns “played a role in their decisions to terminate and limit accounts and close branches.”
“They found that whole communities are without banking services,” Vilker said, noting the importance that credit unions, a cooperatives, consider their community as they make their risk assessments.
Vilker acknowledged—and audience members agreed—that BSA officers often act in reaction to regulators’ wishes.
“Financial inclusion is something that we have to consider,” Vilker said. “We have to ask ourselves if we’ve gone too far.”
He said it’s important the credit union “pre-think” their relationship with MSBs that serve their communities and follow prescribed guidelines.
“Money service businesses (MSBs) in many communities supply vital services for the unbanked or underbanked,” he said.
These services include remittance transfers, prepaid stored value cards, money orders and travelers’ checks.
Vilker said many banks are “walking away” from MSBs, presenting opportunities for credit unions. The Financial Crimes Enforcement Network has issued guidance that many MSBs remain unbanked because of regulatory scrutiny.
FinCEN offers also outlines specific expectations for opening and managing MSB accounts, including lists of low-risk and high-risk indicators.
Vilker noted that credit unions should take note if they are neglected MSBs as a segment of their community and “incorporate a sense of community and financial inclusion into the entire BSA process.”