The U.S. Treasury Department recently released the 2023 De-risking Strategy, which addresses the phenomenon of financial institutions choosing to end relationships with broad groups of customers instead of analyzing the individual risks associated with those customers, a news release said.
Deputy Secretary Wally Adeyemo said the policy recommendations included in the strategy represent a strong step toward de-risking in financial institutions.
“Broad access to well-regulated financial services is in the interest of the United States,” Adeyemo said in a statement. “This strategy represents the next step in Treasury’s longstanding commitment to combatting de-risking and highlights the importance of financial institutions assessing and managing risk. The policy recommendations in this strategy constitute the strongest measures Treasury has proposed on de-risking to date, reflecting the importance of this issue for the Biden-Harris administration.”
The report was mandated by Congress in the Anti-Money Laundering Act of 2020, according to a release from the Treasury Department. De-risking has negative effects on several key U.S. government policy objectives, according to the Treasury. The practice drives financial activity out of the regulated financial system, which can hamper remittances and prevent low- and middle-income households from accessing the financial system. Additionally, de-risking can complicate the transfer of humanitarian aid and disaster relief.
The Biden-Harris administration has prioritized improving the safety, transparency and accessibility of the financial system, while still maintaining a framework that protects the financial system from criminal activity, the report said. Striking a balance between these two objectives is deemed critical to bolstering the effectiveness of the U.S. Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT).
The Treasury Department emphasized that the administration considers addressing de-risking a high priority, because the practice can hurt certain communities, and it also drives financial activity outside of regulated channels, which constitutes a national security risk.
The report released on Tuesday found that de-risking is primarily driven by profitability, which many factors can impact. Over the next several months, public and private sector partners will have the opportunity to engage with the Treasury to find the optimum methods to implement the strategy's policy recommendations. The full strategy can be read here.