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Experts Warn of Alarming Increase in Bank Account Closures Over Suspicious Activities

A picture of a bank
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Experts Warn of Alarming Increase in Bank Account Closures Over Suspicious Activities

Source: Pinterest

According to analysts, there has been a significant rise in banks closing customers’ accounts due to suspicious activities. This trend has been on the rise for various reasons over the past few years.

Experts are raising concerns about the mass closures of bank accounts due to suspicious activity. They believe that banks should explore alternative approaches to handling these situations instead of immediately shutting down a customer’s account.

There Is An Increase In Bank Account Closures

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According to reports, banks have been filing more suspicious activity reports (SARs) in recent years. There has been a 50% increase in SARs filings over the past two years alone. This data suggests that banks are becoming more vigilant in detecting and reporting potential suspicious activities.

After the suspicious activity reports (SARs) are filed, banks have been mostly closing customers’ bank accounts due to the flagged activity.

The Reasons for Bank Account Closures

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The surge in SARs filings is playing a significant role in banks closing accounts due to suspicious activity. While there can be various reasons for account closures, the increased reporting suggests that banks are taking these reports seriously and using them as a basis for shutting down accounts.

Banks have been relying more on anti-money laundering (AML) software, which has led to an increase in SARs filings. This software analyzes account transactions and identifies any suspicious movements or patterns. By flagging these activities, banks can take necessary measures to ensure the integrity of their financial systems.

Reliance On Software

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Penny Crosman wrote about how the use of this AML software can sometimes result in more customers experiencing sudden closures of their bank accounts. The software’s algorithm may flag certain transactions or activities as suspicious, leading to account closures as a precautionary measure.

“One is a heavy reliance on AML software to monitor transactions overseen by decision-makers who don’t know individual customers. Another is outdated rules used to determine which transactions are suspicious,” Crosman wrote. “A third is a set of incentives that push banks to rush and not take the time to understand individual cases.”

Accounts Are Shut Down Immediately

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According to reports, banks receive notifications of potentially suspicious activity through a software they use. However, instead of investigating each case individually, they tend to take immediate action.

Banks opt to close a customer’s account if their transactions are flagged immediately, rather than reaching out to the customer to verify the information. This approach prioritizes swift action to mitigate any potential risks associated with suspicious activity.

Banks Are Not Speaking To Customers

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The report also shows that banks are not engaging in direct communication with customers, especially those whose accounts have been flagged by the system. Instead, they completely shutt out customers during this process.

For some banks, the decision to immediately close flagged accounts is aimed at streamlining the process and avoiding potential regulatory issues. By taking swift action, they can quickly address any concerns related to suspicious activity.

Banks Don’t Want To Waste Time

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It seems many banks are not keen on investing additional time to further investigate the issues flagged by their AML system. It would be beneficial if banks could consider conducting investigations or at least provide more options for customers when their system detects suspicious activity.

However, banks haven’t taken the initiative to explore options that would allow customers to have more input in these situations.

Losing More Customers

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Most banks believe that it’s better to risk losing potential customers due to account closures, even if there are cases of incorrect closures, than deal with potential regulatory issues.

These institutions believe they’ll only experience a small customer loss due to this issue. However, with the increasing number of flagged accounts by AML systems, more Suspicious Activity Reports (SARs) filings and subsequent account closures have been made in recent years.

There Is a Change In The Last Few Years

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It is concerning to see a 50% increase in SARs filings within just two years. This suggests that customer accounts are being closed at a higher rate. If this trend continues and SARs filings continue to rise, it’s likely that more customers will face this problem of account closures.

It’s possible that banks could face even more customer outrage if the issue of incorrect bank closures continues. Customers who have been affected by these closures might take their complaints to regulators, which would further escalate the situation for the banks.

Analysts Suggest Customers Should Have a Say When Their Account Is Flagged

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Analysts believe that banks should give customers a say when the AML system flags their account or transactions as suspicious.

Allowing customers to provide input can definitely help banks narrow down what’s actually suspicious and what’s not. It might take a bit more time and effort, but it’s worth it to ensure a fair and accurate evaluation of flagged accounts. Customer input can provide valuable context and help banks make more informed decisions.

Finding a Balance

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Experts believe that AI can still play a role in identifying unusual banking activity. According to analysts, if an account is flagged with 100% certainty of SARs, AI can handle the situation. AI can efficiently analyze large amounts of data and patterns to detect suspicious transactions and activities.

If the certainty isn’t as high, it would be beneficial for banks to involve their human employees in reaching out to customers. Human interaction can provide a deeper understanding of the situation and help clarify any potential misunderstandings.

The Repercussions of Bank Closures

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Bank closures can have a huge impact on customers. It can disrupt their entire lives, making it difficult to buy things and stay on top of bills. That’s why it’s crucial for banks to take these situations seriously and ensure that their closure processes are accurate and fair.

It’s important for banks to treat their customers with respect and not automatically close their accounts based solely on flagged transactions. By taking a more thoughtful and considerate approach, banks can avoid causing massive issues, such as struggling to pay their employees, for businesses. It’s all about finding a balance between maintaining security measures and understanding the impact on customers’ lives and livelihoods.

Possible Solutions to the Increase in Bank Account Closures

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One possible solution could be for banks to implement a multi-step verification process when flagging transactions. Instead of automatically closing accounts, they could reach out to customers to verify the legitimacy of the transactions. This would allow for open communication and allow customers to provide additional information or clarify any misunderstandings.

Additionally, banks could invest in improving the accuracy of their AI systems by incorporating customer feedback and continuously updating their algorithms. This would help reduce false positives and ensure a more fair and reliable evaluation of flagged transactions. Ultimately, it’s about finding a balance between security measures and customer satisfaction.