Banks and financial institutions are increasingly facing scrutiny for blanket de-risking — a practice designed to mitigate exposure to financial crime but which often ends up excluding legitimate, low-risk customers.
According to RelyComply, the issue has raised major concerns about financial inclusion, ethics, and the long-term stability of regulated markets. By focusing too narrowly on perceived high-risk entities, banks risk alienating those most in need of financial access — the so-called “ghost customers”.
Regulators have long urged FIs to adopt a risk-based approach that prioritises the most serious threats, yet this can lead to unintended consequences. Overly cautious compliance practices can freeze out genuine customers, tarnishing reputations and limiting access to essential financial services. For communities already on the margins, exclusion from the formal economy can have severe consequences, pushing them toward less transparent and riskier alternatives.
The concept of de-risking has been tracked closely by the World Bank since 2016. It involves restricting or ending business relationships with individuals or firms that might be connected to financial crime. However, the logic of “better safe than sorry” is deeply flawed. As RelyComply head of product Kiearn Duggan said, “If you cast a wide net, the better the chance of catching a launderer, only you’ll also catch others in a similar remit with absolutely no criminal history or ill intent.” Data from the World Bank and regional workshops show that this overreach is particularly harmful in parts of Eastern and Southern Africa, where legitimate customers have been shut out of the system entirely.
Such practices run counter to the financial sector’s mission of inclusion. Over the past decade, FinTech innovation has made it possible for millions of unbanked individuals to access digital financial services. Yet, the same regulations that protect the system can also stifle innovation and limit access. Blanket de-risking damages trust between banks and customers, hinders business growth, and can even raise ethical red flags when entire regions or humanitarian organisations are cut off from funding. The loss of access often drives affected customers toward informal markets — where oversight is minimal and exploitation is rife.
Regulators are now seeking to curb the negative effects of de-risking. The Financial Action Task Force (FATF) has released new recommendations to promote financial inclusion, while the European Banking Authority (EBA) has strengthened its risk factor guidelines to help institutions balance anti-money laundering (AML) efforts with accessibility. Still, Duggan warns that “you cannot just pile one regulation on top of another. They are still considered a burden, and may not be able to help all businesses cover regional or cultural nuances; individuals’ financial needs must be heeded at more granular levels.”
Instead of relying on sweeping account closures, the industry is turning toward smarter, technology-driven risk management. RegTech solutions now allow banks to perform enhanced due diligence through automated screening, data centralisation, and real-time monitoring. These systems can identify genuine risks while keeping legitimate financial activity flowing. By using advanced data analytics and AI, firms can pinpoint suspicious activity at an individual level, rather than applying one-size-fits-all compliance controls.
The importance of transparency and collaboration in AML efforts has been reinforced through several cases in South Africa. Former Statistician-General Pali Lehohla publicly criticised banks for closing accounts under vague “reputational risk” grounds, while the Financial Sector Conduct Authority (FSCA) called for greater accountability. In another case, Ndudane vs Financial Intelligence Centre (FIC), the court upheld applicants’ requests for access to confidential reports following unfair account terminations — underscoring the need for clear audit trails and fair treatment.
Ultimately, as Duggan summarised, “For AML to really do its job, investigations have to seek out the real threats from those that are just trying to go about their daily financial business.” Blanket de-risking might seem like an easy fix, but it often worsens the problem by eroding financial inclusion and trust. The real solution lies in leveraging RegTech to make risk-based compliance more precise, efficient, and humane — protecting both financial institutions and the people they serve.
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