RBNZ says banks must have good reason to deprive money remitters of access to financial services, says 'blanket de-risking' not acceptable

RBNZ statement about banks closing accounts of money remitters

Money remitters play an important role in providing a specialised financial service that many people wouldn't otherwise access conveniently and affordably. Remittances from New Zealand represent a significant part of many Pacific nations' incomes.

Some money remitters have recently experienced difficulty maintaining access to banking services or have completely lost access to banking services. Some of them believe that banks are indiscriminately terminating their bank accounts or refusing to open accounts for any new customers in the money remittance business.

In some cases, the explanation that banks have provided for terminating money remitters' accounts has referred to obligations that banks have under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). However, the AML/CFT Act doesn't require banks to take a broad-brush approach, closing existing accounts or refusing to open new accounts for an entire category of customers such as money remitters. Nor does the AML/CFT Act prohibit banks from providing services to any customers unless the banks are unable to conduct customer due diligence on those customers.[1] Although the AML/CFT Act requires banks to have adequate and effective procedures in place to manage and mitigate money laundering and terrorism financing risks posed by their customers, that obligation does not require banks to cease to provide services to an entire category of customers.

The recent New Zealand experience reflects an international banking trend known as "de-risking". The Reserve Bank recognises that banks' reasons for de-risking are varied, including concerns about profitability and reputational risk, and requirements imposed by international correspondent banks.

Money remitters present varying degrees of risk. The Reserve Bank considers that banks' obligations under the AML/CFT Act require measured risk management and do not justify blanket de-risking. With appropriate systems and controls in place, banks should be able to manage and mitigate the money laundering and terrorism financing risks posed by many money remitters. If banks are de-risking to avoid rather than manage and mitigate those risks, then that would be inconsistent with the intended effect of the AML/CFT Act. It seems unlikely, but if banks are using blanket de-risking itself as a procedure to manage and mitigate those risks, then the Reserve Bank would consider that an inadequate means of complying with their obligations under the AML/CFT Act.

The closure of money remitters' accounts is an ongoing international and domestic issue, caused by a complex set of circumstances. The Reserve Bank will continue to work with other Government agencies to clarify the causes and identify potential solutions. The Reserve Bank wishes to ensure that banks' obligations under the AML/CFT Act don't result in money remitters being deprived of access to financial services without good reason. In its capacity as AML/CFT supervisor of registered banks, the Reserve Bank encourages banks to continue to assess the money laundering and terrorism financing risks posed by their customers and implement procedures and policies to manage and mitigate those risks.

[1] The AML/CFT Act contemplates banks taking a risk-based approach to the implementation of the AML/CFT requirements. In particular the AML/CFT Act requires each bank to:

• undertake an assessment of the risk of money laundering and the financing of terrorism that it may reasonably expect to face in the course of its business. In assessing these risks, each bank must have regard to the types of customers it deals with;
• establish an AML/CFT programme, based on its risk assessment, containing the procedures, policies and controls setting out what the bank needs to do to manage and mitigate the money laundering and terrorism financing risks it faces;
• conduct customer due diligence on its customers, including money remitters;
• terminate an existing business relationship with a customer if the bank is unable to conduct customer due diligence in accordance with the AML/CFT Act; and
• not establish a business relationship with a customer if the bank is unable to conduct customer due diligence in accordance with the AML/CFT Act.