De-banking risks

The Reserve Bank, Austrac and the Senate Select Committee on Australia as a Technology and Financial Centre have all expressed concern recently about the risks associated with businesses that have been de-banked (involving a loss or limitation of access to banking services).

The reasons for de-banking can include:

  • commercial considerations, for example the profitability of providing banking services to high-risk customers
  • reputational risk
  • uncertainty associated with the business model of customers, particularly emerging businesses
  • broader environmental, social and corporate policy considerations of institutions
  • expectations of overseas correspondent banks in relation to Australian institutions
  • compliance with sanctions requirements
  • compliance with anti-money laundering and counter-terrorism financing requirements.

The Reserve Bank in its review of retail payments regulation said that it believes that de-banking risks are a significant impediment to competition and innovation in the market for cross-border retail payment and International Money Transfer services.

The Senate Select Committee on Australia as a Technology and Financial Centre Final Report argues that in order to increase certainty and transparency around de-banking, the Australian Government should develop a clear process for businesses that have been de-banked.

AUSTRAC’s statement on de-banking acknowledges that money transferors (remitters), digital currency exchanges, not-for-profit organisations (NPO) and financial technology (FinTech) businesses are disproportionally facing bank account closures. It says that banking services in the Pacific region previously enabled through Australian banks are also at risk.

The effect of de-banking of legitimate and lawful financial services businesses can increase the risks of money laundering and terrorism financing and negatively impacts Australia’s economy. For this reason, AUSTRAC continues to discourage the indiscriminate and widespread closure of accounts across entire financial services sectors.

Separately the reporting date of the Senate Legal and Constitutional Affairs References Committee inquiry into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime has been extended to the last sitting day in March 2022.

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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