KUALA LUMPUR: Users are overwhelmingly frustrated by the frequent online banking services outages and demand stronger security measures and clearer communication from financial institutions (FIs).

Industry observers believe the recent disruptions in online banking services by two of Malaysia’s largest banks call for more proactive security measures and transparent communication strategies from FIs.

Consumers Association of Penang (CAP) president Mohideen Abdul Kader said FIs often have a “kill switch”, a security feature that allows account holders to instantly block their internet banking access, accounts and cards if they suspect they are victims of a scam or that their login credentials have been compromised.

“Some FIs also offer a temporary kill switch to deactivate credit cards when they are not in use. FIs should display a message if there is an outage or anything concerning online services to prevent unnecessary worry for their customers, who might otherwise fear that their devices have been compromised,” he added.

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When the Financial Action Task Force was established by the G7 group of nations back in 1989, the national leaders at the time probably did not imagine that their rules for combatting money laundering would one day cost their citizens double the amount of money spent on the policing of all other crimes put together. Nevertheless, that is precisely the situation today in the UK, one of the founding G7 members.

A new discussion paper from the Institute of Economic Affairs provides some startling data. In 2021/22, UK banks were forced to spend £34.5 billion to comply with Anti-Money Laundering Regulations (AMLR). In contrast, the total cost of policing the entire country was £17.4bn.

The general public may be forgiven for believing that the enormous cost of AMLR compliance has nothing to do with them, as it is paid for by the banks. However, banks are mostly owned by private shareholders and are, therefore, for-profit enterprises. Consequently, the banks are obviously not going to simply accept a massive £34bn dent in their operating income due to government regulations, and they have little choice but to pass on those costs to their customers. 

They do so by charging higher account maintenance fees and higher interest rates on loans and mortgages, and by paying less interest on deposits. Dividing up the £34.5bn costs of AMLR compliance in the UK, one arrives at a cost per bank customer of £220 annually.

Whether by accident or design, politicians have thus detached the state and themselves from the cost of financial policing. This is extremely convenient for the politicians, as the public tends to blame the bankers, already a much-maligned tribe, for the excessive AMLR bureaucracy and the corresponding costs that the banks burden their customers with.

In spite of the extreme costs, at least the AMLR protect the average consumer against unscrupulous criminals who could otherwise use banks for their nefarious activities – right? Probably not so much. 

The single largest source of money laundering is the illegal drug trade. Between 1990, when the first AMLR were introduced, and 2021, the number of illegal drug users around the world is estimated to have increased by 60%, and the number of drug-related deaths to have doubled. In 2022, cocaine prices fell by some 30%. Probably not due to less cocaine use, given that its ubiquitous availability suggests an undimmed popularity, but more likely due to a greater supply of the drug.  As with any commodity, prices go down when the supply of it goes up, and the demand remains unchanged.

Apart from being very expensive and probably rather ineffective, the AMLR also have very unpleasant consequences for the large number of blameless individuals who have their bank accounts closed by the banks simply as a precautionary measure. About 170,000 individuals are being debanked in the UK every year due to the AMLR. By comparison, only some 1,000 individuals are actually convicted of money laundering. Thus, the remaining 169,000 individuals are done a very serious injustice as being without a bank account has profoundly negative consequences for most people.  

Again, overzealous AMLR are to blame since the cost of compliance for the banks is so high that they simply choose to debank certain categories of customers rather than spend time and money on finding out whether each individual customer has done anything wrong.

Originally published here

Sen. Elizabeth Warren (D-Mass.) loves to cast herself as the ultimate public defender of consumers and the arch-nemesis of bankers on Wall Street. 

However, with her recent record opposing popular mergers and shutting down regulatory reform for Bitcoin and its crypto-offspring, Warren has sided more with the major banks rather than new players that stand to empower consumers.

In the last month, Warren has used her perch in the Senate to oppose the repeal of the Securities and Exchange Commission’s Staff Accounting Bulletin 121, which would have allowed financial institutions to more safely hold cryptocurrencies. She’s also moved to shut down Senate debate on the House-passed Financial Innovation and Technology for the 21st Century Act, the first substantial federal framework for digital assets.

In the same vein, Warren opposed the prospective merger between Discover and Capital One Bank, the first serious joint venture that could have rivaled the payment networks of Visa, Mastercard, and American Express. 

Warren, along with left-leaning groups like Americans for Financial Reform and the American Economic Liberties Project, claims the acquisition will stifle competition and harm consumers by creating the largest U.S. credit card issuer in terms of assets.

Their coalition argues Capital One would hike merchant fees and make its users pay higher for using their cards, saddling millions of customers with high-interest debt they could never hope to pay off. 

This critique misses a crucial point: the real threat to competition comes from the entrenched banks that already have dominant market positions, not from the emergence of new competitors that may offer better products.

Many of the large banks with a power base in Washington, D.C. have flexed their regulatory muscle to stop the merger from happening, for the precise reason that it would lead to more competition in a highly regulated space.

In a recent American Banker article, Intrepid Ventures’ Eric Grover made this very case, “The other goliath banks don’t want the deal to go through because they’ll face a more formidable competitor.” Combining the customer base of Capital One banking and credit customers with a dedicated payment network in Discover would unlock some needed competition for payment rails using either debit or credit cards.

In opposing the deal, Warren is purporting to save consumers from yet another “too-big-to-fail” bank, but rather than protecting the little guy, she’s depriving each and every one of us from accessing additional financial service options.

Warren’s position protects big banks from having to innovate and compete and allows them to keep costs high and choices limited for consumers. This isn’t a minor oversight. It raises serious questions about Warren’s true motivations.

In pursuing a centralized, highly regulated financial services sector, Elizabeth Warren has become a warrior for the incumbents rather than the upstarts. She’s chosen to fight for the boardrooms rather than consumers and their wallets.

Despite Warren’s best efforts, the financial landscape is evolving, with digital wallets and flexible credential technologies from companies like Visa and Curve, which offer consumers unprecedented flexibility at checkout. They’re also working to protect consumer privacy by issuing virtual numbers to avoid identity theft. 

FinTech services have slowly gained adoption across the country, providing new ways to consumers to fund their lives and save for their families.

A merger could harness these technologies and provide merchants with more routing options that lead to potentially lower costs for both the provider and the consumer. More choices at the point of sale mean greater competition among the card networks for your loyalty. 

That means an arms race to improve rewards programs.

Despite this potential upside, Warren insists the acquisition can only harm consumers.

The Federal Reserve and the Office of the Comptroller of the Currency (OCC) have extended the public comment period for this acquisition, ensuring a more thorough review. Hopefully, this will allow consumers time to have their say in voicing the need for more competition in the banking sector.

Competition could take the form of innovation in the adoption of cryptocurrencies, a key demand of millennials and minorities who are more likely to hold these assets. It’s an undeniable next frontier for FinTech and banking services which give consumers more control of their money.

Elizabeth Warren’s opposition to the Capital One-Discover acquisition, framed as consumer protection, is actually a defense of the entrenched Wall Street giants who oppose it. 

It’s past time to hold Warren and her cadre of manipulators accountable. Allowing this acquisition to proceed could foster a more competitive and innovative financial sector that benefits all consumers. That’s a goal we should all be able to agree on.

Originally published here

In the modern world of finance, regulation has become the name of the game. Governments across the globe, particularly in the United States and Europe, have ramped up their efforts to ensure that banks operate under a single set of strict rules and guidelines. While this may seem like a necessary step to curb financial misconduct, it has inadvertently led to a surge in compliance costs and an alarming increase in the debanking of customers. Nigel Farage’s high-profile case may have captured headlines, but the real victims are the countless individuals and businesses losing access to their bank accounts due to sloppy risk management.

The U.S. Treasury Department rightly recognizes the potential dangers of de-risking, which refers to the indiscriminate termination or restriction of business relationships with broad categories of customers over “compliance” concerns. In a reportmandated by the Anti-Money Laundering Act of 2020, the Treasury Department shed light on the adverse consequences of de-risking. 

They found that it poses not only a threat to national security but also disrupts the very fabric of the financial system, driving legitimate financial activities away from regulated channels.

Deputy Treasury Secretary Wally Adeyemo emphasized that “broad access to well-regulated financial services is in the interest of the United States.” This statement underscores the importance of striking a balance between regulation and access to financial services. Risk mitigation must have limits. 

The heart of the issue isn’t the profit motive of banks, but more so the overwhelming burden of compliance costs and poorly written regulations directed at banks’ customers. Banks, as profit-driven entities, must allocate their resources efficiently. When compliance costs skyrocket due to complex and ambiguous regulations, they are forced to cut corners, often resulting in the hasty termination of customer accounts as a risk-mitigation measure. 

It’s not uncommon for this to be an automated process, similar to the automation of content moderation on social media platforms, which so often leads to deplatforming without transparency or explaination. 

Everyday consumers, small and medium-sized money-service transmitters, and nonprofit groups operating in high-risk jurisdictions bear the primary burden of de-risking policies. These entities are the lifeblood of many communities, enabling remittances, facilitating humanitarian aid and disaster relief, and providing financial resources to low- and middle-income populations. 

What a human supervisor within a bank might understand as the flow of money between international nonprofits, an automated system developed for de-risking might flag as money-laundering. The old adage of “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck” does’t apply well to regulating global finance. 

The Treasury Department’s report offers a glimmer of hope by suggesting policy recommendations to address the issue.

It advocates for consistent supervisory expectations of anti-money laundering regulations, and support for international financial institutions’ efforts to combat de-risking. However, these recommendations must translate into tangible actions to make a real difference.

One of the most troubling aspects of de-risking is the lack of transparency and accountability in the process. Banks tend to operate as judge, jury, and executioner when it comes to terminating customer accounts. They often fail to engage in meaningful dialogue with their customers, leaving them without recourse or the opportunity to address concerns or rectify perceived compliance issues. More competition in the banking system and allowing more market entrants such as neo banks would boost choice and enable business models around serving consumers with a higher risk profile.

In the quest for a safer and more transparent financial system, it is crucial that regulators and banks find a middle ground. While compliance is vital, it should not come at the expense of legitimate businesses and individuals. 

Clear, concise, and fair regulations, coupled with a willingness to engage with customers in the debanking process, can go a long way in mitigating the negative impacts of de-risking.

It is high time for regulators and financial institutions to heed the call of Deputy Treasury Secretary Adeyemo and work collaboratively to strike a balance between stringent compliance and maintaining broad access to well-regulated financial services. The livelihoods of countless individuals and businesses depend on it, as does the national interest.

Originally published here