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Banks Unfairly Shunning Diamonds, EU Report Says

Jan 10, 2022 9:52 AM   By Rapaport News
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RAPAPORT... Diamond dealers are missing out on access to banking as financial institutions go overboard in their efforts to reduce risk, according to a European Union regulatory agency.

The industry is one of several groups of customers that have struggled to open bank accounts and obtain other services, the European Banking Authority (EBA) said in a report last week.

Antwerp, the EU’s main diamond trading center, has suffered from a waning relationship with banks. Dealers have frequently reported being refused business or personal accounts because of their connection to the industry. This has made it harder for Belgium to compete with an expanding rough and polished market in Dubai.

In 2020, the Antwerp World Diamond Centre (AWDC) said it was “very common” for members to be turned down three times when applying for a bank account. A new Basic Banking Law, which is supposed to grant these companies the right to an account, has still not taken effect despite the federal parliament approving it last year. Some companies have taken legal action against banks to force a change, Rapaport News understands.

These problems have exacerbated the situation in Belgium after several lenders quit the diamond industry or scaled back their operations. Following the closure of the Antwerp Diamond Bank in 2015, the city has seen the departure of Standard Chartered — which ceased lending to midstream diamond players in 2016 — and India’s Union Bank. ABN Amro has also tightened the industry’s access to credit in recent years.

The AWDC declined to comment to Rapaport News Monday.

‘Unwarranted’ actions

The difficulties result from “de-risking,” in which lenders reject or terminate customers because of a possible association with money laundering and terrorist financing. They do this to comply with a 2015 EU directive.

However, while banks’ decisions may be in line with the rules, “de-risking of entire categories of customers, without due consideration of individual customers’ risk profiles, can be unwarranted and a sign of ineffective ML/TF [money laundering and terrorist financing] risk management,” the EBA said.

The EBA carried out a consultation process starting in spring 2020 in which it asked for feedback from lenders and customers on the impact of these strategies. A “significant proportion” of respondents operated in the diamond trade, the EBA pointed out.

Participants from the diamond business claimed they had been denied access to bank accounts and other financial products, such as credit cards, loans, and overdraft facilities. Some were also refused mortgages — even for private use.

Impact on business

Diamantaires also reported receiving no explanation of these decisions, the Paris-based authority noted. Many of them believed banks were stepping away from the sector because of its perceived association with money laundering and terrorist financing, the report continued.

“Respondents indicated that de-risking decisions affected their business significantly, with fewer banks accepting business relationships with them,” the report said. “They referred to fines from suppliers because of delays in payments. This was deemed to have an impact on the [competitiveness] of the sector worldwide.”

Several also said they had been unable to appeal the decisions, and on the “rare occasions” where a review was possible, the banks demanded higher fees in return for maintaining the relationship.

“Most of the respondents indicated they were not able to find an alternative channel to access financial services,” the agency added. “When alternatives were found, they included the opening of accounts in another jurisdiction either in the EU, but mostly in a third country (e.g. India or Dubai), the use of PSPs [payment service providers], or the use of a forex [foreign exchange] account. Several respondents indicated they used cash payments as temporary workarounds.”

Other customers with similar problems include asylum seekers and nonprofit organizations, the EBA said.

Image: Antwerp. (Antwerp World Diamond Centre)
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Tags: Antwerp, Antwerp World Diamond Centre, AWDC, Banking, Belgium, EBA, EU, Europe, European Banking Authority, European Union, finance, lending, Rapaport News
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