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Fees for money laundering checks: what is risk pricing for financial crime?


Introducing fees for higher money laundering risks

Financial crime risk pricing is a strategy used by financial institutions to charge different rates for different levels of risk. In the context of wholesale payments and trade finance, this means that companies or individuals that pose a higher risk of money laundering or fraud will be charged higher fees for transactions.

We are already seeing the concept in practice at the retail level. This is evident in the recent changes to fees for money laundering checks implemented by banks in the Netherlands, as reported by and elsewhere.

According to the article, these changes include higher fees for "high-risk" transactions and lower fees for "low-risk" transactions for corporate and retail customers.

Stricter Rules for Anti-Money Laundering

The fees are intended to cover the cost of increased regulations and the technology required to comply with them. The Dutch Central Bank has also introduced stricter rules for anti-money laundering checks, which include increased monitoring of transactions and a closer examination of the backgrounds of customers.

Despite some criticism, these types of fees can benefit customers by ensuring a more robust financial ecosystem, through shifting the cost of risk to the source of origin, and reducing the likelihood that financial crime will enter networks. 

On a bank-to-bank level, traditional volume-based pricing approaches don't incentivise financial institutions to improve their financial crime controls for higher risk transactions. In fact, the opposite is true.

Institutions are instead encouraged to increase their volume to lower the cost of their fees. This means that volume-based payment systems are more likely to introduce vast amounts of money laundering and crime risk into financial networks, whilst abuses of these systems are easier to perpetrate (as can be seen with the recent Danske Bank money laundering scandal). 

Ultimately, it’s institutions themselves that bear the brunt of risk management and compliance costs in the end, as evidenced by the projected risk management costs worldwide at $274.1 billion as of 2022.

Reducing risk while building trust between financial institutions

Therefore, risk pricing ensures institutions are better managing their own risk and safeguarding themselves against potential financial losses across business functions. It can provide an impetus for companies and individuals to take steps to reduce their risk profile, an opportunity to lower their fees and therefore open up more avenues to access global banking partners through creating greater trust between parties.

Overall, risk pricing is a valuable tool for financial institutions looking to manage their risk and ensure the safety and security of their customers' transactions. As we can see from the Dutch banks’ example, it’s a trend which will only continue to grow.

If you would like to learn more about risk pricing as a solution offered by Elucidate, you can read more about it here

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Elucidate team
Elucidate team

Posts written by diverse members of the Elucidate team.

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