Illinois Bankers Association’s Post

Understanding the intricacies of banking duties in fraud cases is crucial for both customers and financial institutions. In yesterday’s edition of the Business Guardian, M. Glenn Hamel-Smith and I discuss the recent narrowing of the ‘Quincecare duty’ (Barclays Bank plc v Quincecare Ltd and another [1992] 4 All ER 363) by the UK Supreme Court in Philipp v Barclays Bank UK plc [2024] 1 All ER (Comm) 1. It still, however, remains to be seen whether banks would be held as being under a duty to take prompt steps to recover funds stolen from their customers’ accounts (now commonly referred to as the ‘retrieval duty’). This article is also available on the Firm’s blog here: https://lnkd.in/ekUdghiz

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I have helped many clients over the years who have wound up on the receiving end of a bank deciding to close their accounts without giving them any explanation. To those familiar with anti-money laundering compliance like myself and Mike Carter, we know why the financial institutions are doing so. Unfortunately many good people get caught up in the compliance derisking net, even though they have done absolutely nothing wrong. #aml #antimoneylaundering #moneylaundering #terroristfinancing #derisking #compliance #consultants #attorney

We are kind of in a Ping-Pong match between financial inclusion and avoiding regulatory scrutiny, and we are the ball." —Managing director for financial crimes enforcement at JP Morgan Chase. US banks have faced a massive $243 billion in fines since 2008, for AML/CFT compliance issues. This punitive environment has made Financial Institutions (FIs) increasingly cautious, leading to "de-risking." De-risking is evident in the withdrawal of FIs from relationships with money service businesses, foreign embassies, non-profit organizations (NPOs), and correspondent banks, resulting in account closures in the US and other countries, causing humanitarian crises and financial exclusion. Federal agencies must provide clarity on tolerance for unintentional AML/CFT regulatory breaches, and the fairness of penalties. Authorities acknowledge that de-risking contradicts international guidelines and misapplies the risk-based approach, but they lack clear instructions. This has created tension between FIs and regulatory agencies, with vulnerable communities caught in the middle. Financial institutions often find the returns too low to justify perceived risks. In these instances of market failure, government intervention is warranted to realign market dynamics. The US government should reassure FIs of a balanced approach, avoiding arbitrary penalties, and incentivize them through tax exemptions and other means to make their services economically viable in necessary regions. Instead of a one-size-fits-all approach, develop a warning-based model pinning on the degree of non-compliance. The ongoing debate revolves around the need for government support for multi-billion-dollar financial institutions. If the government were to relax regulations, it could lead all financial institutions to seek tax breaks and become less vigilant in enforcing regulatory compliance endangering the AML/CFT framework. The fundamental question is whether it is viable to hold financial institutions responsible for illicit transactions as they are just like other service providers. Drawing a parallel, if individuals can access information on how to create something dangerous and illegal on the internet, should internet service providers be held accountable for acts of terrorism?   In the case of financial institutions, the situation is trickier, it is essential to recognize that they are not enforcement authorities, and policing is not their core function. The outdated financial system necessitates a costly overhaul to manage risks and meet regulatory standards. Banks opt for the easier route of ending relationships to avoid the risks. The objective should not merely be to reduce the regulatory burden on FIs but to understand their concerns, build mutual trust, and ease their operations while aligning with national security and criminal enforcement priorities, especially in vulnerable regions. If not, de-risking would lead to re-risking.

As we celebrate #NationalAccountsPayableDay, it's crucial to highlight a key aspect of the AP process: bank account validation. Read our blog for 3 things you need to know to safeguard against fraud, reduce ach returns, and maintain smooth financial operations. https://ow.ly/bKPZ50SjhLL

Latest banking-as-a-service regulation news! (Is there a way to make that sound catchier?) First Fed has to enhance its compliance management, says a consent order from the FDIC. So what can other banks take away? Konrad Alt spoke with me about how to use enforcement actions as a guide, in my most recent story for American Banker:

I cannot talk enough about the importance of this tool for businesses. Please let me know if you have questions and want to learn more.

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Once again, we see familiar challenges surfacing in our industry—consent orders addressing the same critical compliance issues. It's truly disheartening and a clear sign that transformative measures are still urgently needed. Time is ticking....... #riskmanagement #compliance #bsa #aml #amlcompliance #communitybanking #bebetter