**1. Introduction**

The implementation of a derisking strategy is a recent trend; many banks and financial institutions worldwide are undertaking derisking to simplify their business models, minimise their risk exposures and to comply with the increasing AML/CFT (antimoney laundering and combatting the financing of terrorism) regulations. Other key driving factors, which have led to many banks around the world opting for derisking, include a steady increase in costs necessary to ensure compliance with AML/CFT regulations, rising fines and penalties imposed for noncompliance and the lower profitability of certain customer bases.

Derisking is a process which involves the closure of the bank accounts of, and/or the termination of relationships with, clients categorised as being high risk after considering the risk appetite of the organisation (Durner and Shetret 2015). Nisar (2016) provides some examples of these types of clients, which can include money service businesses (MSBs), correspondent banks, embassies, international charities, nonprofit organisations (NPOs) and multinational corporations (MNCs). Derisking can be carried out in two ways: (1) Wholesale derisking involves the derisking of an entire category of

customers (known as a customer base) or a particular sector. Examples of sectors which are often subject to wholesale derisking are MSBs, NPOs, charities and the defence sector (Durner and Shetret 2015). Alternatively, (2) derisking on a case-by-case basis is when a bank first considers the attributes of an individual customer and the relationship the bank has with such a customer, and then carries out a customer risk assessment. Based on all the information obtained, the bank finally decides on whether or not to carry out derisking (Artingstall et al. 2016).

Moreover, as part of their derisking strategy, banks and other financial institutions may also decide to limit the range of financial services they are willing to provide to these types of clients (Haley 2017). However, although it is thought that by engaging in derisking and terminating relationships with the so-classified high-risk clients, banks and other financial institutions are able to minimise their risk exposures, this has significant negative repercussions on clients and such clients will end up bankless, ultimately leading to increased financial exclusion (Durner and Shetret 2015).

Haley (2017) mentions three main forms of derisking:

