Modern banking compliance was designed to protect the financial system from crime, terrorism, and systemic abuse. Instead, it is increasingly being used as a blunt instrument that punishes innocent, law-abiding individuals and businesses, often without explanation, recourse, or proportionality. Across Europe and other major financial centres, individuals who live legally, work transparently, and operate legitimate businesses are finding their bank accounts frozen or terminated overnight. The reasons are rarely clear. Appeals are slow, opaque, and expensive. The common thread is not wrongdoing, but profile-based risk.
In theory, sanctions, AML, and counter-terrorist financing rules are targeted measures. In practice, they are often applied through automated systems that rely on nationality, place of birth, or broad geopolitical classifications rather than individual behaviour. This creates a compliance environment where entire categories of people are treated as presumptively risky, regardless of their actual conduct. Legal experts consistently point out that most regulatory frameworks do not require financial institutions to deny services to lawful residents, recognised refugees, or compliant businesses purely based on origin or political developments abroad. Yet banks frequently go further than the law requires. The reason is simple: regulators impose severe penalties for missed risks, but almost none for excessive caution. When the cost of under-compliance is measured in billions and the cost of over-compliance is effectively zero, the incentives are clear. Banks respond by de-risking. They exit relationships wholesale rather than assess individuals. Accounts are frozen first and questions, if any, are asked later.
This approach is reinforced by the structure of global compliance infrastructure. Financial institutions rely heavily on large third-party data providers and automated screening tools. These systems aggregate information from state authorities, courts, and regulatory bodies worldwide, often without evaluating the legitimacy, proportionality, or political context of the underlying designation. Once a name enters the system, it propagates globally. Alerts are generated automatically. Relationship managers and compliance officers are left with a binary choice: investigate at significant cost and regulatory risk or terminate the relationship immediately. In most cases, termination wins.
The problem is not limited to any one country or region. A growing number of states have expanded domestic definitions of extremism, financial crime, or national security threats in ways that are vague, expansive, and easily abused. Once these labels exist domestically, they flow seamlessly into international compliance databases and banking systems. Global standard-setters focus primarily on whether procedures are followed, not whether designations are justified. As long as boxes are ticked and assets are frozen, the system considers itself to be functioning. There is little scrutiny of whether the underlying risk is real, exaggerated, or politically motivated.
The result is a form of financial exclusion that operates quietly but effectively. Individuals cannot receive salaries, pay rent, operate companies, or access basic services. Businesses struggle to maintain accounts, process payments, or engage internationally. Clearing one’s name can take months or years, assuming it is possible at all. This is not a failure at the margins. It is a structural flaw. A compliance regime that rewards maximum caution over fairness, automation over judgment, and process over substance is not fit for purpose. When lawful behaviour is treated as suspicious by default, trust in the financial system erodes.
A functioning system must distinguish between genuine risk and administrative convenience. It must provide safe harbour for institutions that service compliant individuals acting lawfully within their jurisdiction. It must offer meaningful recourse for those wrongly affected and impose accountability where designations are systematically abused. Without reform, over-compliance will continue to expand. Banks will protect themselves by excluding more people, not by understanding them better. The burden will fall on ordinary individuals and legitimate businesses, while the system congratulates itself for being “robust”.
Compliance should protect the integrity of the financial system, not undermine the rule of law, proportionality, and basic economic participation. Until incentives change, the system will remain rigid, risk-averse, and fundamentally broken.
How Savva & Associates can assist
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Please get in touch with our team at:
| Charles Savva Managing Director BA, MBA, TEP, CA [email protected] +357 22516671 | Mina Pieri Senior Manager FCCA, MBA [email protected] +357 22510207 | Makis Pavlou Account Manager FCCA [email protected] +357 22510257 |