Heat versus Light: Fact-Checking the Debate over De-Risking

Kay, Stephen J.; Nance, Mark; Tsingou, Eleni

doi:10.29338/ph2021-08

Journal Article

Heat versus Light: Fact-Checking the Debate over De-Risking

Abstract: In this article, we examine the evidence for claims about the connection between bank de-risking and anti–money laundering (AML) regulation. Specifically, we examine evidence for the claim that the cost of increased AML compliance and increasing bank fines have led to banks exiting entire sectors or geographical regions and that this de-risking is deeply damaging to economies. We draw on multiple sources of evidence, including financial flow data, discourse and social media analysis, an evidentiary history, elite interviews, and participant observation. In the end, we find that substantial evidence contradicts this simple explanation of de-risking. Current efforts to review and reform the AML regime are overdue, and we need a sustainable answer to the issue of financial exclusion. That said, the evidence we present here suggests that efforts to curb de-risking should not focus primarily on AML, nor should AML reform focus primarily on de-risking.

Keywords: anti-money laundering; AML; counterterrorism financing; CFT; de-risking; Financial Action Task Force; FATF;

JEL Classification: O17; O19;

https://doi.org/10.29338/ph2021-08