According to the Wall Street Journal, HSBC recently stated that it has “closed accounts in certain segments,”. According to the WSJ, Mr. Werner, speaking at a New York State Society of Certified Public Accountants event said that “We’ve done it because we have shareholders and customers that we have a fiduciary duty to and we have to meet our regulatory expectations.”
“Even if banks are successfully keeping risky customers out of their institutions, those customers could still come back to the bank indirectly, for instance, through the accounts of other customers”, the HSBC representative said.
As part of the broader secular de-risking post financial crisis, many financial institutions are struggling with a range of account closures. The broad consequences of this trend are three-fold: increased compliance costs, reduced financial competition as end clients move to deep-pocketed incumbents, and finally activity going “under-ground”.
The latter spectre raised is probably the most threatening. If financial activity is not kept within the broader regulatory framework, then the regulatory activity over the recent past will have been ultimately a failure. In the remittance industry, for instance, if accounts are not ultimately available, then clearly activity will migrate towards cash moving in physical form internationally, with bankers and regulators unable to audit the transactions that are occurring.
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