Senate Bill Report SJM 8005 — Addressing "de-risking" by Financial Institutions (January 31, 2023)

Summary

Senate Bill Report on SJM 8005, as of January 31, 2023, with the brief description Addressing "de-risking" by financial institutions, and Senators Hasegawa and Wilson, C. listed as sponsors. The bill requests federal legislation to address actions taken by financial institutions in terminating or restricting business relationships with certain customers to avoid regulatory concerns. The Legislature asks Congress and the President of the United States to enact legislation implementing recommendations from directives to the Government Accountability Office and the Treasury, and the legislation should include a requirement that financial institutions disclose a specific reason when denying or closing an account. The persons testifying under PRO are Senator Bob Hasegawa, Prime Sponsor.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Issuer: Congressional materials
Document type: Report
Date: 2023-01-31
Case: 2023 01 31 A30622 D250671 Bill Report 8005 Sbr Bfgt Ta 23

Cite this document

“Senate Bill Report SJM 8005 — Addressing ‘de-risking’ by Financial Institutions (January 31, 2023).” Original at app.leg.wa.gov, dated 2023-01-31. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-01-31-2023-01-31-a30622-d250671-bill-report-8005-sbr-bfgt-ta-23/, SHA-256 0c93169ef72627bcac440868d24fe4d25c88071d374326eb74a287d5e265ad55.

Full text

SENATE BILL REPORT
SJM 8005

As of January 31, 2023

Brief Description: Addressing "de-risking" by financial institutions.

Sponsors: Senators Hasegawa and Wilson, C..

Brief History:
Committee Activity: Business, Financial Services, Gaming & Trade: 1/31/23.

Brief Summary of Bill
• Requests federal legislation to address actions taken by financial
institutions in terminating or restricting business relationships with
certain customers to avoid regulatory concerns.

SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

Staff: Kellee Gunn (786-7429)

Background: De-risking is the practice by banks of limiting certain services or ending
relationships with customers to, among other things, avoid regulatory concerns about
facilitating money laundering and fraud. These regulatory concerns come from certain
federal laws and rules, such as the Bank Secrecy Act and Anti-Money Laundering rules
(BSA/AML), that were written with the intent of identifying potential money laundering or
other suspicious activities. Because of the concern in potentially breaking these federal rules
and laws, there has been an increase in denying and restricting services to certain customers.

De-risking is especially prevalent with money services businesses (MSBs), who use banks
to transfer money across the world, in addition to other services. When MSBs, and other
entities, are unable to obtain and maintain bank accounts, they must then find alternative
methods outside the banking system.

The Department of Financial Institutions (DFI) provides regulatory oversight to MSBs,

This analysis was prepared by non-partisan legislative staff for the use of legislative
members in their deliberations. This analysis is not part of the legislation nor does it
constitute a statement of legislative intent.

Senate Bill Report -1- SJM 8005
banks, and credit unions in Washington State. DFI, the federal Government Accountability
Office (GAO), and others, have studied and provided guidance and recommendations on de-
risking.

The National Defense Authorization Act (NDAA) is the federal law that specifies the
annual budget and expenditures of the United States Department of Defense. In 2020, under
the NDAA for fiscal year 2021, the Anti-Money Laundering Act of 2020 made changes to
AML rules. In December of 2021, the GAO issued a report on de-risking, as directed by the
NDAA. The NDAA also directed the United States Treasury to publish a a report on de-
risking and provide policy recommendations, which is yet to be published.

Summary of Bill: The Legislature asks Congress, and the President of the United States, to
enact legislation implementing the strategies and recommendations resulting from directives
to the GAO and the Treasury under the NDAA, and review DFI's guidance for depository
institutions. The legislation should also include:
• provisions that give federal banking regulators clarity on how to improve the ability
of examiners to evaluate banks' BSA/AML compliance as applied to money
transmitter accounts;
• a requirement that financial institutions disclose a specific reason when denying or
closing an account; and
• assistance for financial institutions to mitigate the cost of due diligence required to
comply with BSA/AML provisions impacting money transmitters.

The Legislature also requests that the President direct federal regulators to work with DFI
and stakeholders to support efforts to develop new and creative solutions to improve
banking access for local and community-based money transmitters.

Appropriation: None.

Fiscal Note: Not requested.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony: PRO: This bill has been seen before but has been
recently updated to reflect current events. The federal government is the only one capable of
solving this problem. The term de-risking sounds alarming. Banks must comply with federal
regulations regarding depositors and so if there is something suspicious, or likely
suspicious, banks close accounts and refuse banking services. This can happen with
refugees because the money is going to a war-torn country. There has been a national
movement on this issue. DFI has been working on coming up with guidance on this. This
SJM is asking Congress to allow people access to banking services.

Senate Bill Report -2- SJM 8005
Persons Testifying: PRO: Senator Bob Hasegawa, Prime Sponsor.

Persons Signed In To Testify But Not Testifying: No one.

Senate Bill Report -3- SJM 8005

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Our copy: 2023-01-31_a30622_d250671_bill-report-8005-sbr-bfgt-ta-23.pdf
Original: app.leg.wa.gov