Re-thinking de-risking : a systems theoretical approach

Purpose: This paper aims to explain the de-risking phenomenon through Luhmann’s risk/danger model and demonstrate that de-risking should be facilitated and encouraged. Design/methodology/approach: The paper applies Luhmann’s system theory and more specifically his risk/danger model to describe the de-risking phenomenon and identify recommendations to address its consequences. Findings: The paper finds that re-defining risk and the anti-money laundering (AML)’s community’s understanding of it can support key stakeholders’ understanding of money laundering (ML) risk and the way to better address consequences of AML decisions. Practical implications: The paper has implications for the banking and regulatory community in relation to the interpretation of de-risking. As systems aim to minimise their exposure to risk, they should not be prevented from de-risking. Originality/value: This paper aims to move away from a narrative description of AML phenomena and presents a theoretical foundation for the analysis of ML risk. The current response to de-risking which demonises it and aims to prevent it is deconstructed through this theoretical lens.