An analysis of the triggers and effects of de-risking strategies within the banking industry

Abstract

The rationale behind this dissertation is to compare and contrast the theoretical concepts of bank de-risking with the actual practice of such strategies within the local banking industry. Additionally, the author seeks to assess the triggers and effects of bank de-risking together with how these financial institutions determine such strategies through their Risk Appetite Framework. The author primarily defines the concept of risk and risk appetite, while describing the history of de-risking strategies within the political and regulatory landscape. Through this historical background, the author delves into the drivers, forms, and the types of clients affected by bank de-risking whilst assessing the humanitarian, economic, and political impacts which it ensues. The thesis then analyses the adoption of de-risking strategies both globally and within the local context, while giving an overview of the various regulatory bodies and competent authorities within Europe, the USA and Malta. This is followed by an overview of the 2019 Moneyval Report, the 2014 National Risk Assessment, and the global and local legislative measures which were introduced to combat the consequences of bank de-risking, including bank measures in onboarding new clients. The author finally delves into a number of findings which are available through a number of interviews with banking professionals. The findings establish that money-laundering concerns are identified as the main trigger of local bank de-risking. This and other findings are then utilised to compare the available literature with the actual practice. Based on the aforementioned findings, this dissertation emphasises the importance of digitalisation within the banking industry through investments in new technology to decrease the possibility of money-laundering and other financial crime. The dissertation also highlights the importance of co-operation between regulatory authorities, updated and fairer regulations, and more quality supervision.