Britain's Financial Conduct Authority appears to be trying to avoid the consequences of its own actions by dissuading financial institutions from "no longer offering financial services to entire categories of customers that they associate with higher money-laundering risk."

In a note issued today that many might greet with sardonic amusement, the regulator makes a brave attempt to convince banks and others that relationships with 'high risk' categories of business are worth their while, despite the density of rule-making, backed up by swingeing fines, of recent years. Money-transmitters, charities and FinTech companies are among the sectors that have felt the scourge of heavy regulation the most.

"Where a bank does not believe that it can manage the money-laundering risk associated with a business relationship effectively, it should not enter into, or maintain, that business relationship. But the risk-based approach does not require banks to deal generically with whole categories of customers or potential customers," pleads the FCA.

"We think that there should be relatively few cases where it is necessary to decline business relationships solely because of anti-money laundering requirements."

The FCA adds that its anti-money-laundering staff are now in the habit of asking themselves whether firms’ de-risking strategies give rise to consumer protection and/or competition issues.

One consultant told Compliance Matters: "If this means that there will be less stringent AML regulation, then I'm a Dutchman."

The 'de-risking' problem reared its ugly head at a recent conference in London, sponsored by Compliance Matters. Frequent mentions were made of the poverty in Somalia that de-risking is causing because of banks not allowing Western Union and other money-remitters to have accounts for fear of money-laundering/terrorist finance supervisors; of banks pulling out of giving advice and the general 'advice gap' that has emanated from the UK's Retail Distribution Review; and of the decline of correspondent accounts for small banks from 'risky' parts of the world generally, which is having an effect of its own on world economics. John Flynn of Deutsche Bank put it brutally: "It's about banks and taking risks. And do you know what? Sometimes we decide that the risks are not appropriate. We can turn risks down. It's perfectly acceptable to do it."

Flynn did not stop there but went on to look at the kind of things that the British regulator thought posed a 'high risk' of money-laundering. In a recent punishment case, the FCA banned the Bank of Beirut for the next 182 days from taking on any 'high risk' customers from a country that had a transparency index [a reference to the 'corruption perceptions index' of Transparency International] of 60 or less. More than 74 countries therefore qualified as 'highly risky'.

Flynn observed: "That means that they can only take business from 35 countries. That's the first time I've ever seen a regulator defining what is highly risky. Going by that, Spain is now a highly risky country that the bank can't do business with. What impact does that have on banks? It's very very difficult."