Banks face rising threat over links to financial crime
The risks to a bank of being linked to financial crime such as money laundering or sanctions are growing and could - in an extreme event - render a bank's business model unviable, credit ratings agency S&P Global Ratings warned.
The ratings agency analysis came as the Central Bank of Ireland wrapped up a consultation on money laundering and terror financing that it started last December under rules which would place more onus on banks to put controls into place to prevent and detect crime.
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It had asked financial institutions to comment on new rules asking whether there were ambiguities in the new laws that needed to be addressed, what other factors needed to be considered and what documentation should be included to address the issues.
Its consultation concluded on April 5 as European banks saw yet another slew of headlines linking them to sanctions and money laundering breaches.
Swedbank has fired its CEO in the latest scandal to hit European banks late in March, hard on the heels of Danske Bank's money laundering case.
"In extremis, and as the closures of a few small banks in the Baltics, Malta and elsewhere show, a business model can quickly become non-viable if clients, counterparts, service providers and ultimately regulators lose confidence in the bank," S&P credit analyst Giles Edwards wrote in the report.
"Unlike for credit risk, when it comes to financial crime risk, a business model based on servicing clients that other banks will not touch is not a business model," he said.
Regulators, like the Central Bank of Ireland, are more willing to "flex muscles", Mr Edwards noted in the report, so increasing the costs of breaking the rules.
The Central Bank places the onus on credit and financial institutions to have anti-money laundering and countering financing of terrorism preventive measures in place, including policies, procedures and processes.
S&P said that while Nordic region banks appeared to account for a disproportionate number of the financial institutions that are under investigation thanks to their links to the Baltic states, the region was not alone in posing risks.
"Many of the companies involved in the various identified Laundromat cases are domiciled far from the original locations of the funds: in offshore centres, but also in key European financial centres, such as the UK, particularly when they allow opaque beneficial ownership structures," the report said.