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The head of the Financial Action Task Force, an international group that sets money-laundering standards, warns that many foreign institutions are now feeling the effects of the push inside American banks to cut off large swaths of customers.
December 29 -
The banking industry and federal regulators are struggling to find a middle ground between financial inclusion and preventing bad guys from gaining access to the mainstream financial system but it doesn't appear a solution is coming anytime soon.
December 29 -
After nearly two years, the Justice Department so far has accused just one bank of facilitating consumer fraud. And the aftermath of that case suggests that prosecutors' strategy is not as effective as they hoped it would be.
December 3
WASHINGTON The Federal Deposit Insurance Corp. issued a letter Wednesday emphasizing that financial institutions should take a measured approach to banking relationships rather than cutting ties with entire lines of businesses.
The agency's announcement was welcomed by businesses that have seen banks dropping them as customers due to fears about added regulatory scrutiny, particularly payday and online lenders. The industry has dubbed this trend "de-risking," whereby banks cut off business lines altogether rather than assess customers on a case-by-case basis.
"The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act," the FDIC said.
The agency is "encouraging supervised institutions to take a risk-based approach in assessing individual customer relationships, rather than declining to provide banking services to entire categories of customers without regard to the risks presented by an individual customer or the financial institution's ability to manage the risk."
The message itself isn't new and other regulators, including the Financial Crimes Enforcement Network, have emphasized the same thing. But the industry has argued that the message is not getting through to individual examiners who continue to scrutinize certain business lines.
Likely as a result of this criticism, the FDIC added in its message that examiners will be required to provide a written document if they direct an institution to split ways with a customer. The agency also created a toll free number that an institution can call if it feels examiners are not abiding by the FDIC risk-based approach.
Some of the issue stems from a 2011 post on the FDIC's website that gave examples of third party payment processing businesses, including online and payday lenders, that posed a "higher risk" of becoming agents of illegal activity. The guidance was later used by the Justice Department as part of its "Operation Choke Point" campaign to target banks and other payment processors that provided services for potentially shady businesses. Dozens of banks have been subpoenaed as part of the Choke Point operation.
The FDIC withdrew the list in July of last year, saying it had been misinterpreted and that banks have gone too far in avoiding higher risk businesses.
"The lists of examples of merchant categories have led to misunderstandings regarding the FDIC's supervisory approach to [third party payment processors], creating the misperception that the listed examples of merchant categories were prohibited or discouraged," the FDIC said at the time.
The FDIC has since distanced itself from Operation Choke Point, saying it is not working in concert with the Justice Department, but lawmakers have claimed otherwise.
"FDIC, in cooperation with the Justice Department, made sure banks understood or in their own language, 'got the message' that maintaining relationships with certain disfavored business lines would incur enormous regulatory risk," according to a report published last year by the House Committee on Oversight and Government Reform.
The letter issued by the FDIC on Wednesday said that "financial institutions that properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customers operating in compliance with applicable laws."
Lawmakers hailed the announcement.
"Today is a turning point in the fight against Operation Choke Point," said Rep. Blaine Luetkemeyer, R-Mo., who helped lead a congressional investigation into the program.
Industry organizations that were targeted by the FDIC also welcomed the statement.
"The FDIC sent a clear message today that banks can do business with legal online lenders," said Lisa McGreevy, President of the Online Lenders Association in a statement. "This is a critical first step to ending the subversive Operation Choke Point campaign by a few overzealous government bureaucrats designed to cut off entire industries from the banking system."
The Community Financial Services Association released a similar statement saying, "today's FDIC guidance is an important step forward as it is an initial effort to correct the problem of regulatory overreach and pressure from Operation Choke Point, and it is a rejection of the notion that regulators are free to insert their personal and subjective viewpoints into their role as federal officials."
