The European Banking Authority (EBA) on 31st March 2023 issued an amendment of the previous EBA risk factor guidelines (revised) issued in March 2021.
Why?
Many institutions are de-risking Non-Profit Organizations (NPOs) because it is difficult to understand the NPOs’ structures and business models or because they operate in high-risk countries.
Understanding De-risking
“De-risking refers to decisions made by credit and financial institutions to refuse to enter into or to terminate business relationships with individual customers or categories of customers associated with higher money laundering and terrorist financing.”
When banks and financial institutions are de-risking NPOs, it makes it difficult for these types of organisations to have access to funding or transfer funds in certain jurisdictions where they operate. This has several consequences on NPOs’ programmes.
The amendment
The amendment aims to assist countries and financial institutions to obtain a common understanding of effective ML/TF risk management practices in relation to NPOs.
The amendment includes:
1. A definition of NPO:
NPOs: “A not-for-profit organisation is a legal person or arrangement or an organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes.”
2. An annex that sets out factors credit and financial institutions should consider when assessing ML/TF associated with NPOs and help them understand on a risk-sensitive basis:
Who controls the customer and who are the beneficial owners (trustees, governing body etc)
How the NPO is funded (private donations, government funds etc)
The objectives of the customer’s operations
Which categories of beneficiaries benefit from the customer’s activities
What transactions the NPOs is likely to request based on the objectives and activities
Where the NPO conducts its programmes and operations.
The risk factors included in the amendment can help financial institutions better understand the ML/TF risks associated with NPOs. It also recognizes that not all NPOs pose the same ML/TF risks.
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