Asylum seekers excluded from EU financial services

Over-zealous application of anti-terrorism and anti-money laundering policies denies asylum seekers access to banking services Photo: Julie Ricard / Unsplash

Over-zealous application of anti-terrorism and anti-money laundering policies denies asylum seekers access to banking services Photo: Julie Ricard / Unsplash

Banks in Europe are inadvertently preventing asylum seekers and not-for-profit organisations from accessing financial services due to inexpertly applied anti-money laundering and anti-terrorist financing risk management policies, the European Banking Authority said on Thursday.

Measures taken by financial institutions to manage risk are in reality excluding entire categories of customer instead of managing the individual risk associated with those relationships, the authority said in its report Opinion of the European Banking Authority on ‘de-risking’, published on 5 January 2022.

“De-risking, especially if it is unwarranted, has a detrimental impact on the achievement of the EU’s objectives, in particular in relation to fighting financial crime effectively, promoting financial inclusion and competition in the single market,” the EBA said.

Financial inclusion, including access to at least basic financial products and services, is a prerequisite for participation in modern economic and social life, the EBA iterated in its report. However, banks, payment institutions and electronic money institutions are among the services denied to certain categories of customer.

The EBA has called upon regulators and other competent authorities to tackle the issue. For example, “consumer leaflets that set out what type of information institutions need to comply”, and, if exclusion is warranted, to still “offer basic financial products and services” to the customer.

Other recommendations include noting the grounds for exclusion decisions in customer due diligence (CDD) records and creating a template that credit institutions would be required to use when notifying competent authorities when they decide to reject an account.

This is particularly important in the context of the upcoming review of the Payment Services Directive (PSD2), the legal framework to make European payments more innovative and competitive, the report noted.

The EBA in 2020 and 2021 reached out to authorities and stakeholders across the EU to understand the scale and implications of unwarranted de-risking. The EBA’s findings suggest a detrimental impact in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.