De-risking and Financial Fragmentation in Asia: A Structural Assessment of Risks for Cross-Border Trade, Investment Flows, and Development Resilience
This report analyzes the systemic risks associated with de-risking practices and their impact on Asia’s economic architecture. It focuses on the threat of financial fragmentation arising as banks and financial institutions restrict services to entire sectors and jurisdictions in an attempt to minimize regulatory and sanctions risks.
The study explores the sources of de-risking, ranging from sanctions uncertainty to automated AML systems that often fail to account for regional specifics. The report provides a detailed analysis of how these practices affect correspondent banking relationships and trade finance—critical components for Asia’s export-oriented economies. Special emphasis is placed on risks to project finance and infrastructure initiatives, where financial isolation can lead to the suspension of strategically significant projects.
The work introduces the “De-risking Stress Assessment” model, which allows regulators to evaluate the level of financial integration and identify areas of critical vulnerability. It provides recommendations for institutions such as the ADB, ASEAN, MAS, and HKMA, aimed at implementing the principle of proportionality in compliance procedures and creating mechanisms to prevent the unjustified exclusion of legitimate participants from the global financial system.
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