On April 10, 2023, the U.S. Department of the Treasury released a comprehensive strategy document aimed at addressing the practice of “de-risking”—when financial institutions terminate relationships with clients or entire jurisdictions to avoid perceived AML risks. This practice, while protecting institutions from regulatory scrutiny, has resulted in the exclusion of legitimate individuals and businesses from the formal financial system, particularly in high-risk and underserved regions.

The strategy called for a more nuanced understanding of customer and jurisdictional risks. It urged financial institutions to improve due diligence practices rather than defaulting to wholesale exclusion. This shift aims to enhance financial inclusion, especially for nonprofit organizations and cross-border remittances. The Treasury emphasized that effective AML compliance should be risk-sensitive, not risk-averse, and encouraged a balance between compliance and access to financial services.

The strategy further outlined steps to improve regulatory clarity and reduce the uncertainty that drives de-risking. These included promoting information-sharing through public-private partnerships and increasing the use of innovative technologies to better identify and manage risk. Institutions are advised to document their rationale for customer exits and ensure decisions are based on substantiated risk assessments.

For compliance professionals, this strategy requires a shift in mindset—from defensively exiting risky markets to proactively managing them. It reinforces the need for data-driven decision-making and continuous engagement with regulators to promote both financial integrity and accessibility.

Source: FACT SHEET: Treasury Department Announces 2023 De-Risking Strategy
Image Source: Wikipedia: Treasury Building (Washington, D.C.)