Survey: payment service providers do not abuse de-risking but there is room for improvement
Anti-money laundering measures applied by Lithuania’s financial institutions and their de-risking policies do not significantly undermine access to payment services for individual categories of consumers but lead to a number of challenges faced by the country’s payment service consumers as a result of application of these procedures.
This has been demonstrated by a survey of de-risking practices conducted by the Bank of Lithuania between the second and the fourth quarters of 2021 with the aim to find out whether the anti-money laundering and counter-terrorist financing (AML/CTF) measures and de-risking policies applied by payment services providers (banks, electronic money and payment institutions, etc.) supervised by the Bank of Lithuania do not undermine access to payment services for legitimate individual consumer groups.
The survey has revealed that certain practical problems do occur in relation in applying these measures. In view of the outstanding concerns identified during this, the Bank of Lithuania is launching a public consultation on measures to improve the experience of payment service consumers using payment services and the application of AML/CTF measures in relation to them, and will take steps to remedy the situation.
“With the European and global AML/CTF requirements becoming ever stricter, many countries have encountered an increasingly apparent problem of de-risking in financial services where financial institutions refuse to render financial services to riskier groups of customers instead of managing the money laundering and terrorist financing (ML/TF) risks related to such customers. The survey conducted by the Bank of Lithuania has not shown any significant limitations to access to services for consumers in Lithuania as a result of de-risking. However, the analysis has shown that consumers face certain challenges and uncertainties due to the application of AML/CTF requirements. Financial institutions should look for ways to properly communicate with customers while implementing the AML/CTF requirements and managing the ML/TF risks,” said Simonas Krėpšta, Member of the Board of the Bank of Lithuania.
The analysis involved the assessment of complaints and inquiries related to AML/CTF and received by the Bank of Lithuania in 2020 and in the first half of 2021. Payment service providers were interviewed about their de-risking policies and payment service consumers – about their experience in the use of these services.
As a result, the Bank of Lithuania has identified several types of challenges faced by payment service consumers when the providers of those services apply AML/CTF measures.
“For instance, it is not always clear for consumers why payment service providers ask to provide one or another kind of information on the grounds of AML/CTF, why they sometimes fail to clearly specify the scope of information requested or why they keep little contact with consumers. Payment transactions are often simply suspended in order to ask for supporting documentation and consumers are not adequately informed about the document evaluation process and its terms,” Krėpšta specified.
The Bank of Lithuania, as a regulatory authority, was dissatisfied with such a situation and, as part of preparations for the public consultation, had drawn up a document focused on ways to improve the experience of payment service consumers related to the application of AML/CTF measures, he added.
Having collected feedback from stakeholders, the Bank of Lithuania will make definitive choices as to the steps that should be taken to remedy the situation. Initial proposals have already been made available to the public.
During the public consultation stakeholders will be able express their opinions, make comments and suggestions with regard to the proposals of the Bank of Lithuania on the areas in need of improvement and measures pertaining to the experience of payment service providers related to the filling in or updating of Know Your Customer (KYC) questionnaires, to the provision of information requested by payment service providers and to the application of other AML/CTF requirements by the providers of those services.
Responses to the public consultation will be accepted until 4 February 2022.
The Bank of Lithuania will continue to monitor the application of de-risking and will take appropriate action if it discovers any signs of undesirable consequences of de-risking policies. It will also get actively involved in the drawing up process of the European Banking Authority’s (EBA) documents with the aim to ensure a balance between legislation governing payment services and AML/CTF legislation.