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An Economic Approach to Evaluating the Impact of AML/CFT Regulations

By Caitlin Mcgough

This paper addresses the unintended consequences of AML/CFT regulations, seeking to provide an economic analysis of the drivers of derisking and the broader consequences for the goal of financial integrity. Looking at qualitative data, this paper (1) concludes the problem of derisking warrants a reconsideration of the enforcement approach and (2) recommends reorienting the banks’ payoff matrix by reducing the cost of compliance and regulatory risk associated with providing financial services to highrisk, lowprofit customers. This paper culminates with the recommendation to consider tolerating “honest mistakes” on the part of financial institutions in order to achieve the goals of integrity and inclusion in the international financial system.

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Advisor: Connel Fullenkamp | Tagged: De-Risking, Financial Inclusion, Money Laundering, Terrorism Financing


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