How Financial Institutions Force the EU to an Inevitable Enhancement of the AML Regulation

14 Pages Posted: 6 Oct 2020

Date Written: October 5, 2020

Abstract

Purpose: Recent research shows that due to money laundering risks, there has been an increase in the off-boarding of certain types of corporate clients in the financial sector. This phenomenon known as "de-risking" has been argued to have a negative impact on society, because it increases the possible risk of money laundering. In spite of increasing regulation within the prevention of money laundering in the EU, the de-risking effect is led by financial institutions throughout Europe. Furthermore, the financial institutions have argued that the compliance cost of the increasing money laundering regulation is a key factor for de-risking. The purpose of this article is to analyze whether the de-risking strategy of financial institutions can result in yet another expansion of the regulatory framework concerning anti-money laundering efforts focused on the off-boarding of clients and if so, is there a way to avoid further regulation by changing present behavior.

Design/methodology/approach: This article applies functional methods to law and economics in order to achieve higher efficiency in combating money laundering.

Findings: In this article it is found that the continuing of de-risking by financial institutions due to the avoidance strategy of money laundering risks, will inevitably result in further regulatory demands regarding the off-boarding process of clients. The legal basis for the introduction of further regulatory intervention is that some of the de-risking constitute a direct contradiction to the aim of the present regulatory framework.

Originality/value: There has been very little research concerning de-risking related to money laundering. The present research has focused on the effect on society and not the relationship between the financial institutions and the regulator. This article raises an important and present problem, as the behavior of the financial institutions constitute a response from the regulator that is contradicting the thoughts behind the behavior of the financial institutions. It is found that the article is highly relevant if an expansion of regulation is to be hindered.

Keywords: Money Laundering, De-risking, Financial sector, Regulation

JEL Classification: K22, G20, G38

Suggested Citation

Rose, Kalle Johannes, How Financial Institutions Force the EU to an Inevitable Enhancement of the AML Regulation (October 5, 2020). Copenhagen Business School, CBS LAW Research Paper No. 20-33, Available at SSRN: https://ssrn.com/abstract=3705212

Kalle Johannes Rose (Contact Author)

Copenhagen Business School - CBS Law ( email )

Porcelaenshave 18B, 1
Frederiksberg 2000
Denmark

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