Summary of CySEC's Circular C391

Memo #35-2020

CySEC Circular No: C391
Date: 18/06/2020
Subject: EBA’s Call for input on ‘de-risking’ and its impact on access to financial services
Purpose: To inform Regulated Entities about EBA's Call for input on ‘de-risking’.

In Summary:

CySEC has issued the Circular C391 on 18/06/2020 in order to inform the CIFs, UCITS Management Companies, Internally managed UCITS, AIFMs, Internally managed AIFs, Internally managed AIFLNPs and the  Companies with sole purpose the management of AIFLNPs, that the European Banking Authority (EBA) Call for input on ‘de-risking’ in order for EBA to understand why financial institutions choose to de-risk instead of managing the risks associated with certain sectors or customers, as well as, to identify the scale of the issue of ‘de-risking' and the challenges caused to a variety of interested parties as a result of de-risking at EU level.
 
Financial institutions have to put in place and maintain policies and procedures to comply with their legal obligations. These include policies and procedures to identify and manage the risks to which they are exposed, for example the risk that they may be used for money laundering and terrorist financing (ML/TF) purposes or credit risk. Where a financial institution considers that it cannot effectively manage those risks, it may decide to restrict access to or withdraw from providing a particular financial product or service, or servicing a particular customer or category of customers. This is referred to as ‘de-risking’.

The ESAs’ Joint Risk Factors Guidelines indicated that a risk-based approach does not require financial institutions to terminate business relationships with entire categories of customers that they associate with higher ML/TF risk, as the risk associated with individual business relationships may vary, even within one category. 

The Call for input on “de-risking” forms part of the EBA’s work to lead, coordinate and monitor the EU financial sector’s AML/CFT efforts.

In accordance with this Circular, the feedback gathered from this Call for input on “de-risking” will feed into the EBA’s next Opinion on the risks of money laundering and terrorist financing affecting the Union's financial sector that will be published in Q1, 2021.

CySEC encourages the Regulated Entities to submit their responses by 11 September 2020 at the latest.

This Circular includes a link where Regulated Entities shall click and re-direct to EBA's website to submit a response.

The ESAs’ Joint Risk Factors Guidelines can be found on the following link: https://esas-joint-committee.europa.eu/Publications/Guidelines/Guidelines%20on%20Risk%20Factors_EN_04-01-2018.pdf 

Read the CySEC Circular C391

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