By Griffith University following a roundtable discussion which took place during the 2024 Japan FinTech Festival.
August 2024
According to the World Bank Group, the Asia-Pacific region accounts for half of the world’s unbanked. This whitepaper explores how policymakers, banks and other financial institutions in the Asia-Pacific region can manage the trade-off between financial inclusion and compliance with regulations on anti-money laundering/combatting the financing of terrorism (hereinafter “AML/CFT”).
This tradeoff may manifest itself in de-banking of existing or prospective customers. In addition to undermining financial inclusion efforts, de-banking frustrates AML/CFT objectives by pressuring higher-risk transactions out of the regulated system into murkier, informal channels that are more difficult to track.
What is de-banking?
Individuals and businesses are “de-banked” when a bank/financial institution closes their account, declines to open one or limits the types of financial services offered. Although persons can face difficulties accessing financial services for many reasons, de-banking is largely reported in situations where it is caused by AML/CFT-compliance related issues.
Opening an account with a financial institution is a key, yet potentially difficult, component of accessing financial services. One of the biggest challenges for (potential) customers of banks and other financial institutions is meeting AML/CFT requirements related to personal identification and verification. Such requirements typically entail the collection of mandatory documentation (to open an account) that certain applicants do not have and/or cannot easily obtain.
Which international organization(s) sets standards relevant to de-banking?
In the last two to three decades, countries around the world, including in the Asia-Pacific region, have established AML/CFT frameworks based on standards issued by the Financial Action Task Force (hereinafter “FATF”). FATF and FATF-style regional bodies like the Asia Pacific Group on Money Laundering (hereinafter “APG”), incentivize member-States to conform their frameworks to international standards by publishing “mutual evaluations” that assess the strength of the relevant jurisdiction’s AML/CFT regime.
However, with the proliferation of AML/CFT regulations, new concerns have arisen as to their effect on global efforts to eliminate poverty, including initiatives aimed at increasing access to finance for traditionally underserved and excluded populations.
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