Every business wants more customers, right?
Well, actually, no.
Every business wants the right sort of customers. There’s a subtle difference and it’s one which may mean different things to different people.
For example – I’m a Bank (Dave Bank). Do I want customers who always stay within their account limits and cause me very little issue, or do I want customers who regularly go into unauthorised overdrafts, incur charges on returned payments and so on. Well, the latter are the ones I get to make money from…
Let’s take another example.
Dave Bank has reviewed its overall risk appetite and decided that in the current AML environment - where Steve Bank and Brian Bank have been fined heavily for certain regulatory infractions - it wants to reduce its potential exposure by reducing the number of ‘high risk’ relationships.
As a result, Dave Bank concludes it would be best to start ‘exiting a number of relationships’ (translation: ‘take your business somewhere else please’).
Top of the list? it seems that certain classes of Politically Exposed Persons (PEPs) and jurisdictions may be amongst the first to go.
(* I could have picked any word with ‘PEP’ in it, but the definition of Dyspepsia is ‘A disorder of digestive function characterized by discomfort or heartburn or nausea’, which seemed quite fitting in relation to discussions around a (lack of) appetite).
Meanwhile, back in reality
Recent weeks have seen these sorts of issue come to light.
Yesterday, it was reported that HSBC is closing accounts for foreign Diplomats in Britain, serving them 60 days’ notice. This apparently has affected more than 40 embassies and consulates, including the Vatican. To add insult to injury, other Banks are refusing to take their business.
On a similar note, Barclays Bank revealed it was closing about 100 UK accounts held by cash transfer businesses, over fears they could be used for money laundering. This was identified as having a particularly acute impact in Somalia, where it was estimated 40% of the population rely on cash transfers.
So here’s the thing – by ‘managing out’ that risk, where does it go?
Inclusion and Integrity
It could be argued, particularly in the Barclays case, that payments will simply be driven ‘underground’, meaning more anonymity and lack of audit trail – counterproductive in terms of AML controls.
By taking people out of the system (financial exclusion), are you potentially compromising the integrity rather than strengthening it?
This certainly seems to be the point of view of FATF, who are drawing increasing attention to the inherent inter-relationship between financial integrity and financial inclusion: “today… there is a general recognition that financial inclusion, financial integrity and financial stability are not only compatible, but also mutually reinforcing.”
Whilst there are clearly commercial, reputational and regulatory impacts for a Firm around the acceptance and management of high risk customers, it seems the broader balance between financial integrity and financial inclusion will remain elusive.
At least until Dave Bank becomes fully licensed.