An EU plan approved Thursday that could force banks in member-states to open accounts for most applicants would complicate anti-money laundering compliance efforts, according to critics.
With support from a broad coalition of political parties, members of the EU Parliament endorsed a measure that, if adopted by the union’s 28 national governments, would require financial institutions to make clearer and quicker fee disclosures and ease the ability of consumers to switch banks.
Under the initiative, countries would also ensure “that payment accounts with basic features are offered to consumers by all payment service providers in their territory.” The features include allowing consumers to deposit and withdraw cash, pay bills and buy goods online and initiate payment orders from their accounts.
Banks would have to open an account “within seven business days of receiving a complete application, including proof of identity,” under the plan.
The proposal “goes too far,” and would raise a number of compliance challenges for financial institutions in Europe, according to Florence Ranson, an EU affairs specialist with the European Banking Federation (EBF), a Brussels-based industry group.
In a June comment letter, the industry group said that the plan ignores money laundering risks linked to cross-border payments as well as variances in recordkeeping and document rules among EU member-states. The proposal would “enable criminals to open up a bank account more easily due to less stringent AML legislation,” the EBF said.
“We agree with the idea of granting a basic bank account with very limited features at the national level for people who are financially excluded, but we do not agree with the imposition of this measure at a cross-border level,” said Ranson. “Banks defend the legal notion of freedom of contract” that allows companies to choose customers without government input, she said.
The plan would allow banks to reject customers who don’t pass anti-money laundering checks or already have an account in the country, but financial institutions would have to justify such decisions in writing. Consumers could then challenge the rejections at an “alternative dispute resolution body.”
“Even in these cases, a refusal can only be justified where the consumer does not comply with [AML rules] and not because the procedure to check compliance…is too burdensome or costly,” the proposal reads.
The EU Commission will begin discussing the plan next month with national governments, which must then pass legislation to implement the measures, officials said Thursday.
The measure represents the European Parliament’s position for negotiations with member-states and “therefore the final outcome is subject to change,” said EU Parliament spokeswoman Daria Kolenska.
Rules vs. responsibilities
Banks have faced recent criticism for their decisions to turn away clients due to AML-related risks.
Citing regulatory risks, London-based Barclays Plc announced in May that it was cutting ties with 250 money services businesses, including Somalia-based Dahabshiil Holdings Ltd. The Somali MSB won a temporary injunction from a U.K. court in November ordering the bank to maintain its accounts in an effort to preserve remittances to the cash-poor country.
Barclay’s decision to close Dahabshiil’s account reflects the conflict between banks’ AML compliance duties and broader social responsibilities, said Mark Outhwaite, former head of compliance for Standard Chartered Bank's private banking operations.
Regulators allow financial institutions to choose their customers based on risk “because, at the end of the day, it’s the bank that’s going to have to answer for their decisions if they’ve gone wrong,” he said.
Thursday’s proposal to require the provision of banking services could also reverse a worsening banking situation for American expats after the passage of the U.S. Foreign Account Tax Compliance Act, or FATCA. The law, which mandates that foreign banks regularly disclose data on their U.S. clients or face withholding taxes on payments leaving the United States, has prompted some European institutions to circumvent the problem altogether.
Rather than overhaul their due diligence programs and account opening procedures to comply with FATCA, several EU banks have chosen to close any account they maintain for U.S. citizens, said Ranson.
“The implications of FATCA are so far reaching that many individual banks prefer not to enter in a contractual relationship with American customers,” she said. The problem may be short-lived because an expected global plan on financial data exchanges will impose similar requirements on clients, mitigating the pressure to single out American customers, said Ranson.
According to World Bank statistics, roughly 58 million people living in the EU don’t have bank accounts, or 11 percent of the union’s total population.
Under current banking practices, most EU persons can only open bank accounts in their home country, limiting the ability of EU students and migrant workers to transfer and receive funds to and from their home countries.
In 2011, migrant workers transferred nearly 40 billion euros to their countries of origin, according to Eurostat, the statistical office of the European Union.
“Guaranteeing mobility within the European Union must remain a common objective of the Member States,” EU Commission officials said in a report last month. “The access to a bank account as a universal right for all citizens in the European Union, including vulnerable groups, constitutes a crucial contribution to this goal.”