Category: Strategic & Macro
In the two years between 2023 and 2025, more than one hundred and forty thousand bank accounts belonging to small and medium-sized enterprises were closed or restricted by major financial institutions around the world. The businesses affected were not accused of wrongdoing. They were not subject to regulatory action. In most cases, they were not even given a clear explanation. They simply received a letter — or, increasingly, an email — informing them that their banking relationship was being terminated, typically with thirty days' notice to move their funds elsewhere.
This is the reality of global de-risking, a phenomenon that has reshaped the financial landscape for cross-border businesses over the past decade and shows no sign of abating. For the one-to-fifteen-person businesses with two hundred and fifty thousand to three million dollars in annual cross-border flows — the trade operators, project contractors, and service principals who form the backbone of international commerce — de-risking is not an abstract regulatory concern. It is an existential threat to their ability to operate.
This article examines the scale and drivers of global de-risking, its disproportionate impact on SMEs, the systemic implications for international trade, and the emerging alternative infrastructure that may — or may not — fill the void left by retreating banks.
The Scale of De-Risking in 2023-2025
The figures are staggering. According to data from financial regulators and industry bodies, more than one hundred and forty thousand business accounts were closed or restricted in major financial centres during this period. This represents an acceleration of a trend that has been building for a decade: the systematic withdrawal of banking services from businesses that are perceived as presenting elevated compliance risk.
The closures are not distributed evenly. Businesses operating in certain sectors — money services businesses, import-export firms, travel agencies, charities operating internationally, and any business with significant cross-border transaction volumes — are disproportionately affected. Geographically, businesses with connections to developing markets, particularly in Africa, the Middle East, South Asia, and Southeast Asia, are far more likely to be de-risked than those operating exclusively within major developed economies.
The pattern is global. In the United Kingdom, the Financial Conduct Authority has reported a steady increase in account closures, with small businesses the most frequently affected. In the United States, the closure of accounts held by money services businesses has been widely documented. In Australia, businesses with connections to the Pacific Islands have reported systematic difficulties in maintaining banking relationships. The Caribbean, where several small island economies depend on correspondent banking relationships with major international banks, has been particularly hard hit.
The Regulatory Drivers Behind De-Risking
De-risking is not a decision that banks take lightly — closing accounts means losing customers and revenue. The drivers are fundamentally regulatory.
The primary driver is the escalating cost of compliance with anti-money laundering and counter-terrorism financing regulations. Since the Financial Action Task Force strengthened its recommendations in the wake of the 2008 financial crisis and subsequent terrorism events, banks have been required to implement increasingly rigorous customer due diligence, transaction monitoring, and reporting processes. The cost of these processes — which includes technology investment, staff training, and regulatory penalties for failures — has grown dramatically.
For large banks serving millions of customers, the economics are clear: the compliance cost per account is relatively low for simple domestic relationships and relatively high for international relationships that involve multiple jurisdictions, multiple currencies, and complex transaction patterns. When the compliance cost exceeds the revenue generated by the account, the rational economic decision is to close the account.
The regulatory penalty risk amplifies this calculation. In recent years, several major banks have been fined billions of dollars for AML failures, and the regulatory expectation is that banks must not only detect suspicious activity but also prevent it — a standard that is effectively impossible to meet without either enormous investment or dramatic reduction in risk exposure. De-risking is the latter approach: rather than investing in the capability to manage complex international relationships safely, banks simply eliminate those relationships.
The result is a collective action problem. Individual banks, acting rationally in response to regulatory incentives, withdraw from markets and segments that present elevated risk. The cumulative effect is a systemic withdrawal of banking services from entire categories of businesses and entire regions of the world.
Why SMEs Are Disproportionately Affected
Small and medium-sized enterprises are disproportionately affected by de-risking for several reasons.
First, SMEs lack the bargaining power of larger organisations. When a major corporation's bank threatens to close its account, the corporation can escalate to senior management, engage legal counsel, and leverage the value of its broader banking relationship to negotiate a resolution. An SME with a single account and no relationship manager has no such leverage. It receives a template letter and has no meaningful avenue of appeal.
Second, SMEs are more likely to exhibit the transaction patterns that trigger automated compliance alerts. A small import-export business that makes regular payments to suppliers in multiple developing countries looks, to an automated transaction monitoring system, very similar to a money laundering operation. The algorithm cannot distinguish between a legitimate trade business and a criminal enterprise based on transaction patterns alone, and the cost of human review is high enough that many banks default to closure rather than investigation.
Third, SMEs operating internationally are more likely to have connections to jurisdictions that are classified as high-risk by the Financial Action Task Force or by the bank's own risk framework. A project contractor working in East Africa, a trade operator importing from South Asia, or a service provider with clients in the Middle East may have perfectly legitimate reasons for these connections, but the presence of high-risk jurisdiction exposure in the account profile increases the compliance cost and the regulatory risk for the bank.
Fourth, SMEs typically lack the compliance infrastructure that banks increasingly expect from their customers. Large corporations have dedicated compliance officers, documented policies, and auditable procedures. SMEs may have nothing more than a principal who tries to follow the rules but lacks the formal systems that banks want to see when assessing risk.
The Decline of Correspondent Banking in Developing Markets
One of the most consequential dimensions of de-risking is the decline of correspondent banking — the network of relationships between banks in different countries that enables cross-border payments. Correspondent banking is the plumbing of international trade: without it, a business in Kenya cannot pay a supplier in China, a contractor in Dubai cannot remit funds to a subcontractor in India, and a family in the Philippines cannot receive a payment from a relative working in the Gulf.
Since 2011, the number of correspondent banking relationships globally has declined by more than twenty per cent, with the most severe reductions occurring in connections between major financial centres and developing markets. Several small island states in the Caribbean and the Pacific have lost all or nearly all of their correspondent banking relationships, effectively cutting them off from the international financial system.
The decline of correspondent banking does not merely inconvenience businesses — it constrains economic development. When a business cannot make or receive international payments through the formal banking system, it is forced to use informal channels — cash couriers, informal value transfer systems, or cryptocurrency — that are less secure, less transparent, and more vulnerable to abuse. The irony of de-risking is that by pushing transactions out of the regulated banking system, it may actually increase the risk of money laundering and terrorism financing rather than reducing it.
The 2.5 Trillion Dollar Trade Finance Gap
The trade finance gap — the difference between the demand for trade finance and the supply available from banks — has grown to an estimated 2.5 trillion dollars globally. This gap disproportionately affects SMEs and businesses in developing markets, which are the same populations most affected by de-risking.
Trade finance — letters of credit, trade loans, and other instruments that facilitate international commerce — has always been harder for SMEs to access than for large corporations. The documentation requirements are burdensome, the minimum transaction sizes are often too large, and the risk appetite of trade finance departments has contracted in parallel with de-risking.
For a small trade operator seeking a letter of credit to guarantee payment to a supplier in another country, the barriers can be insurmountable. The bank may require collateral that the operator does not have, may impose fees that make the transaction uneconomic, or may simply decline to provide the service because the trade involves a jurisdiction that the bank has de-risked.
The trade finance gap is not merely a financial inconvenience — it is a constraint on global trade and economic development. The Asian Development Bank has estimated that the trade finance gap reduces global trade by several hundred billion dollars per year, with the impact concentrated in the developing markets that can least afford it.
The Emerging Alternative Infrastructure
The void left by retreating banks is being filled, unevenly and imperfectly, by alternative financial infrastructure. This infrastructure takes several forms.
Digital banks and neobanks have emerged as significant providers of banking services to SMEs that have been de-risked by traditional institutions. These providers typically have lower cost structures, more modern compliance technology, and a greater willingness to serve international businesses. However, they are not immune to de-risking pressures — several digital banks have themselves been fined for compliance failures, and some have responded by tightening their own risk appetite.
Fintech platforms specialising in cross-border payments have carved out a significant niche by offering international payment services that are faster, cheaper, and more transparent than traditional bank transfers. These platforms use local banking relationships and alternative payment rails to route payments, and they have invested heavily in compliance technology that can distinguish between legitimate and suspicious transactions more effectively than traditional monitoring systems.
Managed business workspace solutions represent a newer category of alternative infrastructure. These solutions provide businesses with an integrated operating perimeter that includes current accounts, payment processing, card programmes, and compliance management — all within a structure that is designed for international operations. By aggregating multiple businesses within a shared regulatory framework, managed workspaces can achieve compliance efficiencies that individual SMEs cannot, and they can provide banking and payment capabilities that would otherwise be unavailable to businesses that have been de-risked.
Digital payment rails — including real-time payment networks, blockchain-based settlement systems, and central bank digital currencies — are gradually creating alternatives to the traditional correspondent banking system. These rails have the potential to reduce the cost and increase the speed of cross-border payments, but their adoption is uneven and their regulatory treatment varies significantly by jurisdiction.
The Regulatory Advocacy Movement
There is a growing recognition among regulators, international organisations, and industry bodies that de-risking is creating systemic problems that may outweigh the compliance benefits it was intended to achieve.
The Financial Action Task Force has issued guidance emphasising that de-risking is not an acceptable response to compliance obligations — banks are expected to manage risk, not avoid it entirely. Several national regulators have followed suit, issuing statements urging banks to distinguish between legitimate businesses that happen to operate in higher-risk categories and actual criminal enterprises.
However, regulatory guidance alone is insufficient to reverse de-risking. Banks respond to incentives, and as long as the penalty risk for serving high-risk customers exceeds the revenue they generate, de-risking will continue. Changing this calculus requires either reducing the penalty risk — which regulators are reluctant to do — or increasing the efficiency of compliance — which requires investment in technology and processes that many banks are unwilling to make for segments they have already decided to exit.
The advocacy movement has also highlighted the disproportionate impact of de-risking on vulnerable populations, including diaspora communities who rely on remittances, small businesses in developing economies that depend on international trade, and charities that operate in conflict zones. The social cost of de-risking — measured in lost economic opportunity, increased financial exclusion, and reduced charitable activity — is increasingly difficult to ignore.
What the Next Generation of Cross-Border Business Infrastructure Looks Like
The current crisis of de-risking is also an opportunity for systemic change. The financial infrastructure that served cross-border businesses adequately in the era of abundant correspondent banking relationships is no longer fit for purpose. What replaces it will likely be more diverse, more technology-driven, and more responsive to the needs of SMEs.
The next generation of cross-border business infrastructure will likely combine several elements. Regulatory technology that enables more efficient and accurate compliance screening, reducing the cost of serving international businesses and the risk of false positives that lead to unnecessary account closures. Shared infrastructure — such as managed business workspaces — that allows SMEs to pool compliance resources and benefit from the economies of scale that large corporations enjoy. Digital payment rails that provide alternatives to the correspondent banking system, enabling faster and cheaper cross-border payments without depending on traditional banking relationships. And regulatory frameworks that recognise the difference between managing risk and avoiding it, creating safe harbours for banks and financial institutions that serve legitimate international businesses in good faith.
This vision is not utopian — elements of it already exist. The challenge is bringing these elements together into a coherent system that serves the needs of the international SMEs that are currently being abandoned by the traditional banking system.
Why the Current Crisis Is Also an Opportunity for Systemic Change
Crisis breeds innovation. The de-risking crisis has created a large and growing market of underserved businesses — businesses that need banking and payment services, are willing to pay for them, and are perfectly legitimate but cannot access them through traditional channels. This market opportunity is attracting investment, talent, and entrepreneurial energy that is driving the development of alternative infrastructure.
For the SMEs affected by de-risking, the practical path forward involves several steps. First, diversifying banking relationships — never depend on a single institution for critical financial services. Second, investing in compliance infrastructure — having documented policies, clean records, and audit-ready documentation makes it easier to establish and maintain banking relationships. Third, exploring alternative financial platforms — digital banks, fintech payment providers, and managed business workspace solutions that are designed for international operations. Fourth, engaging with industry associations and advocacy groups that are working to influence regulatory policy and promote the interests of legitimate international businesses.
The transition from a bank-centric to a platform-centric model of cross-border financial services is already underway. The businesses that adapt to this transition early — by building relationships with alternative providers, investing in compliance capability, and diversifying their financial infrastructure — will be better positioned to weather the continued de-risking storm. Those that cling to the traditional model of a single banking relationship for all their financial needs may find that the relationship is terminated without warning, leaving them with no backup plan and no viable alternative.
Looking Forward
Global de-risking is not a temporary disruption — it is a structural transformation of the financial system. The banks that are exiting relationships with international SMEs are unlikely to return, because the regulatory and economic incentives that drove their departure have not changed and are unlikely to change in the foreseeable future.
What comes next will be shaped by the choices that businesses, regulators, and technology providers make in the coming years. If regulators continue to tighten AML requirements without providing safe harbours for good-faith service to legitimate businesses, de-risking will accelerate. If technology providers can deliver compliance solutions that reduce the cost and improve the accuracy of risk management, banks and alternative providers may expand their risk appetite. If businesses invest in their own compliance capabilities, they will be better positioned to maintain and establish financial relationships.
For the international operator — the trade business, the project contractor, the service principal — the imperative is clear: build financial resilience by diversifying relationships, investing in compliance, and engaging with the alternative infrastructure that is emerging to fill the void. The era of taking banking access for granted is over. The era of actively managing your financial infrastructure has begun.