We thank our colleague Carlos Grossman, for the report out of Chile where the Antimonopoly Division of the National Economic Prosecutor Office (División Antimonopolios de la Fiscalía Nacional Económica – FNE)  reports the investigation that took place after an August 2015 complaint by a Forex Firm denouncing seven banks of denying the opening of a bank account. The investigation and the conclusions are very important for the industry worldwide and Mr. Grossman has provided us with the report, so it can be read and used by any company in the industry that is been denied an account.

Gaston Palmucci, Head of the Antitrust Division

The report signed by Gaston Palmucci, Head of the Antitrust Division, is forcing the banks not to abandon their risk-based approach to opening MSB accounts (if they have any) but to make it much more objective, more fact-based, easily understood for regulators and government entities that will be monitoring the provision of bank services, essential for any business to operate.

The report can be viewed here, in Spanish, with the English translation attached after it. The translation has not been corrected and it is published for information purposes only.

Quoting from the Report

Quoting from the report, the prosecutor explains that: “…the current investigation aimed to determine the existence of possible anticompetitive effects in the refusal of some banking institutions to grant the banking services to an individual whose main line of business is foreign exchange.

The report follows with the banks justification: “…the main justification given by the investigated banks to the refusal of opening current accounts is related to (i) the reputational risk of being involved in investigations for money laundering and terrorist financing crimes and, (ii) the additional monitoring costs regarding the particularly risky clients.

The report concludes that: “…although some of the justifications given by the Investigated banks seemed reasonable for this Prosecutor’s Office, there is also the lack of transparency of the banking policies regarding the requirements necessary to open a bank account…” and highlights the importance of the banks “setting objective, transparent and non-discriminatory system for the opening of bank accounts in banking institutions to avoid the anticompetitive spirit of banking institutions in order to exclude some economic agents from offering their services to the public.

The report also asks regulators to act

The report also calls for regulators to work on “the improvement of the current regulation that would allow to fulfill the GAFI recommendations to avoid that banking institutions leave risky clients (“de-risking”) out of the financial system; it would reduce the operations in the informal financial system; it would facilitate the UAF’s monitoring work of suspicious activities…

… and orders the investigated banks

It orders the investigated banks to modify the account opening policies to “…avoid the discriminatory and unjustified denial of bank account services to exchange offices and remittance companies. This modification consists in setting a series of objective requirements that would allow, under certain conditions, to accept and provide access to bank accounts.

What next?

Whether the banks would comply with the requirements of the Prosecutors Office is yet to be seen and we hope to hear more about this issue when Mr. Grossman joins a panel in IMTC WORLD 2017 in Miami.

This report reinforces the industry’s request to financial and licensing regulators in all countries in the world to require banks to make a detailed report when they close or deny a bank account to a licensed entity. We hope FATF-GAFI help us to push forward this measure that will provide regulators to information on how the institutions they regulate partner – or not, with each other and if measures should be put in place to avoid discrimination and anticompetitive schemes. Measures taken by Central Banks to allow non-banks access to central settlement channels are also positive signs that regulators are helping to solve derisking practices.