Algorithmic debanking

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Penny Crosman writes, "One is a heavy reliance on AML software to monitor transactions overseen by decision-makers who don't know individual customers. Another is outdated rules used to determine which transactions are suspicious. A third is a set of incentives that push banks to rush and not take the time to understand individual cases."

It's true that algorithms alert financial institutions to transactions that appear suspicious. Thomson Reuters found the number of suspicious activity reports (SARs) filed by banks surged by 50% in just two years. Rather than investigate the flags, however, there's a growing tendency to close accounts and shut customers out.
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... In a risk/reward trade-off, we're led to believe it's too expensive to include customer input and losing a "minuscule" number of customers is preferable to the inevitable "regulatory headaches."
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The human impacts of SAR processes gone wrong were captured by the New York Times in a recent examination of over 500 cases of customers being dropped by their banks. Small businesses can't make payroll, credit scores take a hit, people can't pay their bills on time — it's all very messy.
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... AML software vendors include ACI, Nice Actimize, ComplyAdvantage, Feedzai, Quantexa and Thetaray. ...

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... Multiple vendors offer transaction monitoring systems, each with varying types and levels of AI involvement, including ... Verafin, ... Manta (now an IBM company) .... Google also began offering anti-money-laundering AI this summer.

Another company offering AI-based transaction monitoring is Featurespace, ...

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De-risking refers to the situation where financial institutions choose to restrict or terminate their business relationships with specific clients or categories of clients, opting to avoid risks altogether rather than managing them. Several interconnected factors contribute to these decisions, including risk perception, profitability, compliance costs, the risk of sanctions, reputational risk, and a lack of proper understanding of AML/CFT requirements. The relative importance of these factors varies on a case-by-case basis. However, concerns about profitability play a primary role in driving de-risking. High compliance costs, even if unrelated to AML/CFT, can directly impact profitability and contribute to the decision to de-risk. It is important to note that the FATF recognizes the significant contribution of improper implementation of FATF standards within the AML/CFT framework to the exacerbation of de-risking in the financial sector (FATF, 2021b).
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The Consumer Financial Protection Bureau received 2,941 complaints about bank savings and checking account closures in 2023, about a 50% increase from 2022 and nearly double what it was in 2020. In addition, journalists at The New York Times have received more than a thousand complaints about sudden bank account closures in the past year.

Insiders chalk the increases up to a combination of aggressive AML rules, the automation of AML and the quest for efficiency and cost-cutting which leads to quicker investigations of suspicious transactions, if they are investigated at all. ...

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An ongoing inquiry by Britain's cross-party Treasury Committee said that eight of the country's top banks shut almost 142,000 accounts held by small businesses in the last year, amid concerns some companies are struggling to access financing.

Figures supplied by Barclays, HSBC, TSB, Lloyds, Santander, NatWest, Metro and Handelsbanken showed 2.7% of the 5.3 million business accounts held by small companies were closed for reasons including risk appetite and financial crime concerns.

"We can see from these figures that thousands of small businesses fall foul of their bank's risk appetite definition, leaving them without access to a bank account," Chair of the Treasury Committee Harriett Baldwin said in a statement.

Only three of the banks listed "risk appetite" as a reason for closing accounts, with 4,214 cases listed.
Baldwin said this raised questions over whether discussions on 'de-banking', the industry term used to describe a customer having an account closed or refused, may be happening "informally" and not "systematically recorded".
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pmbug said:

I was mulling over writing an article on this subject. It's the lynchpin justification for algorithmic debanking and the war on crypto. It's the fulcrum over which the seesaw of financial freedom teeters between security and liberty.

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ALERT! Major Bank Closing Down Customer Accounts WITHOUT Warning! SHOCKING Reason​

Joe King said:

When's P Diddly gonna be unbanked?

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Cutting access to our legacy financial system for Bitcoin/crypto companies — even for pedestrian fiat-only services — is still alive and well. On Tuesday, @billcom notified @Lightspark that based on their processing banks requirements, they couldn’t serve us anymore. Yesterday, our account was shutdown.

The terms of service they pointed us to, to describe our “industry”, didn’t even include services we provide. It didn’t matter.

Whether your business is in crypto, or not, don’t work with companies that have a patronizing approach to what’s acceptable or not when your activity is 100% legal and compliant.
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A Chinese-style social credit system is coming to America​

searcher said:

... And, of course, banks may choose with whom to conduct business. ...

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Customers Bank, which services some of the largest names in crypto including Galaxy Digital (GLXY), Coinbase (COIN) and Circle, has told some hedge-fund clients it can no longer provide them with banking services, according to three people familiar with the matter.

Whilst the extent of the cull is unclear, one person said "a load of funds" were involved. A second person said the action represented the offboarding of inactive accounts rather than the widespread debanking of the industry. A third person said their digital assets financial services firm had spoken to a number of funds looking for new providers in recent weeks, potentially as a result of the offboarding of accounts at Customers.

This latest development highlights the difficulty that some crypto companies have in accessing the U.S. dollar banking system in the aftermath of the collapse of Silvergate Bank and Signature Bank last year.
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Now, however, Florida Chief Financial Officer Jimmy Patronis has come up with an urgent reason for a state to own its own bank – to avoid bank regulations designed to achieve social or political ends that state officials believe are inappropriate or go too far, including “debanking” vocal opponents of federal policy. The concerns are Constitutional, testing the First Amendment guarantees of free speech, freedom of the press and freedom of religion, and the 10th Amendment right of states and citizens to self-govern in matters not specifically delegated in the Constitution to central government oversight.
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The Debanking of America - Are You Next?​

• Why banks can close your account without explanation
• How payment processors are targeting specific businesses
• The truth about "suspicious activity" closures
• Ways to protect yourself from sudden account closure
• The growing trend of political de-banking

About Federal Bank Surveillance

Federal law requires banks and other financial institutions to monitor their customers and report anything “suspicious” to federal law enforcement.

All kinds of things can be deemed “suspicious,” including:

• Regular cash deposits or withdrawals
• Activity just under $10,000
• Overseas transactions
• Donations to certain nonprofit organizations
• Transactions at gun shops
• Even shopping at stores like Dick’s Sporting Goods and Cabella’s

How This Affects You

When customers’ activities generate reports, banks may summarily close accounts. Federal law prohibits banks from telling customers they’re under surveillance, so you may never know why your account was closed.

Take Action

The Institute for Justice is considering legal action to challenge this federal surveillance system. The Fourth Amendment protects Americans against unreasonable searches, and that right extends to your financial records.

The Institute for Justice is a nonprofit, public interest law firm that represents clients free of charge. If your bank account was closed without explanation—or if you were blocked from other financial services like Zelle—we want to hear your story.

Share Your Experience

By filling out this form, you can provide us with information about your experience. If we think that you are a possible candidate to include in our litigation, we will reach out to you.

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Targeting 'de-banking' would be good if Trump is 'open & honest' about reason, says Brookings' Klein​

What to know:​

• Federal Reserve Chairman Jerome Powell committed during a Senate hearing to addressing so-called "debanking" of legal business sectors, including digital assets.
• Powell also suggested that crypto stablecoins "may have a big future," and he supports work on regulation for them.
• The Fed chair said the economy is in a good place and saw no reason to rush ahead with further rate cuts. Bitcoin is showing continued weakness, lower by more than 2% on Tuesday.

searcher said:

... Federal Reserve Chairman Jerome Powell ... addressing so-called "debanking" ...

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The crypto industry’s debanking smokescreen​

Trump Organization sues Capital One bank over account closures after Jan. 6 Capitol riot​

• The Trump Organization sued Capital One bank in Florida for closing hundreds of the company’s accounts after Jan. 6, 2021, riot at the U.S. Capitol.
• The suit alleges that Capital One ”‘de-banked’ Plaintiffs’ Accounts because Capital One believed that the political tide at the moment favored doing so.”
• The bank told CNBC, “Capital One has not and does not close customer accounts for political reasons.”

The Financial Integrity and Regulation Management (FIRM) Act​

Overview:
Financial regulators have weaponized their power to target disfavored political groups and individuals
in America, hiding behind opaque veils of confidentiality and insincere proclamations of
independence. We must rein in these rogue regulators.

Chairman Tim Scott’s Financial Integrity and Regulation Management (FIRM) Act curtails the
political weaponization of the Federal banking agencies by eliminating the ability for regulators to use
“reputational risk” as a component of the supervision of federally regulated financial institutions.

The FIRM Act will:

• Eliminate all references to reputational risk as a measure to determine the safety and
  soundness of regulated depository institutions.
• Eliminate the Federal banking agencies’ ability to promulgate new rules or guidance that use
  reputational risk to supervise or regulate depository institutions.
• Require the Federal banking agencies to report to Congress on their elimination of reputational
  risk as a component of the supervision of depository institutions.

This bill is narrowly tailored so that removal of this subjective factor does not affect quantitative
supervisory measures (e.g. concentration risk, liquidity risk, etc.).

Background on Reputational Risk:

• The term “reputational risk” is commonly used by Federal banking agencies to refer to the
  potential that negative publicity or negative public opinion regarding an institution’s business
  practices, whether true or not, will cause a decline in confidence in the institution, decline in
  the customer base, costly litigation, or revenue reductions.
• Through informal guidance, the Federal banking agencies—Federal Reserve, OCC, FDIC,
  NCUA—have incorporated reputational risk as a component to determine a federally regulated
  depository institution’s supervisory rating.
• The use of reputational risk to determine a depository institution’s supervisory rating is not
  required by statute and it is an improper use of supervisory authority. Federal banking
  agencies use reputational risk to prevent federally regulated depository institutions from
  providing financial services to industries that the agencies disfavor.

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