Key insights:

• • • Debanking can have harsh consequences — Losing a bank relationship can abruptly cut off finances and damage reputations, often excluding people and firms from basic economic life, often without a clear explanation.

    • The core tension for banks — Financial institutions need to balance the risk between AML/KYC and fraud versus preserving fair access to financial services. As reputational and ideological factors enter into decision-making, concerns about discretion and due process grow.

    • Policy is moving toward guardrails — Already many policymakers are pushing for clearer documentation, transparent notices, a common-sense path to appeal, and a bright line between financial‑crime risk and other risks.

Financial institutions serve as the foundation of the modern economy. Nearly every transaction — from paying for services to buying a cup of coffee — depends on an institution that facilitates or underwrites these exchanges. In this interconnected system, access to banking relationships has become essential for meaningful economic participation for individuals and organizations.

This dependence creates significant consequences for society. Without access to banking services, both businesses and individuals face significant barriers to participating in the economy. Businesses cannot easily pay their employees, fulfill tax obligations, or conduct basic commercial activities. Similarly, individuals struggle to receive payments and manage their personal finances. When institutions terminate these relationships, they effectively exclude people and businesses from the broader economic system. This reality applies to both traditional banks and modern FinTech companies.

Given banking relationships’ critical role in economic participation, the circumstances under which these relationships end deserve careful examination. Financial institutions face ongoing challenges in determining which customers they can serve while meeting regulatory obligations and business objectives. This decision-making process has evolved and can ultimately lead to what experts call debanking — a practice that involves closing accounts and terminating interactions between debanked individuals or organizations and the financial institutions doing the debanking.

What debanking is — and isn’t

The impact of debanking extends far beyond the inconvenience of closing an account. Affected individuals may face extended periods without access to essential funds needed for survival, and they often suffer lasting reputational damage that may cause other financial institutions to reject them as well. Most concerning, however, is that banks rarely provide clear explanations for debanking decisions, leaving individuals unable to address potential misunderstandings or prevent future occurrences.

Without access to banking services, both businesses and individuals face significant barriers to participating in the economy.

This lack of transparency and the cascading effects of banking exclusion demonstrate the profound power that financial institutions hold in determining who can fully participate in the modern economy. This also causes concern about who holds this power and how it can ultimately be kept in check.

Not surprisingly, the concept of debanking has become a contentious issue in the financial sector, with proponents and critics presenting varying perspectives on its implications. At its core, debanking most often occurs when financial institutions terminate or refuse to establish customer relationships, often due to concerns about risk management or regulatory compliance.

Financial institutions argue that debanking is a necessary measure to mitigate potential risks, such as money laundering, terrorist financing, and other fraudulent activities by certain individuals or businesses. By terminating these illicit customer relationships, banks aim to protect themselves from reputational damage, financial losses, and regulatory penalties while maintaining financial system integrity and adhering to anti-money laundering (AML) and know-your-customer (KYC) regulations.

Critics, on the other hand, argue that debanking can have unintended consequences, particularly for marginalized communities and individuals who may not have access to alternative financial services. This can lead to financial exclusion, making it difficult for people to access basic banking services, such as deposit accounts, credit, and payment processing services.

However, the scope and application of debanking practices have expanded beyond traditional risk-based criteria. Questions have emerged regarding the appropriateness of account closures based on reputational concerns, political associations, or ideological considerations. This broader application has intensified public discourse about the boundaries of institutional discretion and the potential implications for financial inclusion.

Policymakers now are working to ensure that banks can address genuine risks without discriminating against customers based on their lawful views.

To navigate this issue, financial institutions need to follow a balanced approach. This involves enhancing transparency, providing channels for appeal or alternative services, and refining regulations to define acceptable grounds for debanking. The goal is to maintain a secure and inclusive financial system that effectively manages risk while protecting the interests of ordinary citizens and legitimate businesses.

Policymakers get involved

In response to concerns that non-financial factors may influence these decisions, an Executive Order was issued by the Trump administration in August to establish clearer guidelines for banking institutions, requiring that account management decisions be based primarily on financial and risk-related criteria. The order seeks to standardize practices across the industry and provide greater transparency in the decision-making process for account closures and financial service terminations.

In September, at the Association of Certified Anti-Money Laundering Specialists (ACAMS) Assembly held in Las Vegas, Mike Greenman, Senior Vice President and Chief Counsel of Financial Crimes Legal at US Bank, emphasized the critical importance that financial institutions present clear documentation for when and how debanking decisions were made about specific industries. Greenman strongly advised institutions to “always separate financial crime risk from other risks.”

Looking ahead at debanking

The issue of debanking has garnered attention due to high-profile cases and concerns about potential misuse. Investigations in several countries have found no evidence of widespread politically motivated debanking, but the perception of potential abuse has led many critics to re-examine this practice. Policymakers now are working to ensure that banks can address genuine risks without discriminating against customers based on their lawful views.

To navigate this issue, a balanced approach is necessary, one that involves enhancing transparency, providing channels for appeal or alternative services, and refining regulations to define acceptable grounds for debanking. The goal for financial institutions should be to maintain a secure and inclusive financial system that effectively manages risk while protecting the interests of ordinary citizens and legitimate businesses.

You can find out more about the regulatory challenges that financial institutions face here

However, when navigating the complex landscape of direct investments, family offices need to understand the importance of due diligence and post-investment monitoring. While often lucrative, these investments can be higher-risk opportunities in sectors and geographies that are outside family offices’ traditional focus area and thus they demand rigorous scrutiny. Given the private nature of these investments, it is also prudent for family offices to go beyond their four walls in exploring resources for this process. Direct investment provides greater exposure to the capital source, both financially and reputationally, and the due diligence process should leave no stone unturned.

Understanding the nuances of potential transactions by conducting thorough reputational due diligence is paramount for any investor, particularly during times of economic uncertainty. Due diligence is not just a formality, but rather, it is an imperative process that safeguards the interests of family offices and their beneficiaries. By embracing due diligence as a fundamental aspect of their investment strategy, family offices can navigate the complexities of direct investments with confidence, protecting and growing the wealth and reputations of their clients.

Understanding due diligence

“Do your due diligence,” is a term that investors typically hear throughout the investment lifecycle, but what does that actually mean for family offices?

While is a comprehensive process of investigation and analysis that should be conducted before entering into any business transaction or investment, in the context of family office direct investments, it involves a meticulous examination of the opportunity with the aim of uncovering previously unknown risks. Reputational due diligence is a comprehensive assessment that goes beyond financial analysis to evaluate the integrity, ethical standing, and overall reputation of a potential investment target. While financial metrics are essential, reputational due diligence addresses the qualitative aspects of an investment, helping family offices uncover hidden risks that may not be immediately apparent, but potentially impactful on the investment.

As many high-profile collapses in fast-moving, highly lucrative industries have demonstrated, it is not always abnormalities in the books and records that may lead to a company’s demise. An executive with a problematic track record with personnel, for example, can be equally if not more damaging than fraud or poor financial recordkeeping. Uncovering these nuances can be critical to not just evaluating whether to make an investment, but to justify the investment’s value and, in some cases, provide leverage when negotiating terms.

The importance of reputational due diligence

There are many reasons family offices should ensure their diligence is ironclad, including:

• • • Protecting wealth and preserving legacy — Family offices are custodians of generational wealth, and their investments play a crucial role in preserving and growing that wealth over time. Reputational due diligence acts as a safeguard, protecting family offices from associating with entities that may pose risks to their wealth or tarnish the family’s legacy.
    • Mitigating operational risks — Beyond financial risks, operational risks can significantly affect the success of an investment. Reputational due diligence helps family offices identify potential operational issues, such as management deficiencies, regulatory violations, or ethical lapses, allowing investors to make informed decisions and mitigate these risks before they escalate.
    • Enhancing stakeholder relations — Family offices often operate with a long-term perspective, and their investments are not only financial transactions but strategic partnerships. Reputational due diligence aids in understanding the cultural and ethical alignment between the family office and the investment target, fostering better relationships with stakeholders and reducing the likelihood of conflicts down the line.
    • Navigating regulatory challenges — Regulatory environments can vary significantly across jurisdictions, and family offices that engage in cross-border investments must navigate these complexities. Reputational due diligence helps identify any legal or regulatory issues associated with an investment, and preventing potential legal entanglements that could arise post-investment.
    • Preserving brand value — The reputation of a family office is intrinsically linked to its brand value. A single investment gone awry can have far-reaching consequences, affecting not only the financial health of the family office but also its standing in the broader business community. Reputational due diligence helps family offices make informed decisions that align with their values and mitigate the risk of negative publicity.

Finally, due diligence also should not be a one-and-done exercise. Family offices should regularly refresh their due diligence on their portfolio investments, ensuring circumstances have not changed and their investment strategy remains sound.

In the ever-evolving landscape of direct investments, family offices must prioritize reputational due diligence as an integral part of their decision-making process. The insights gained through this diligence process provide a comprehensive understanding of potential risks, allowing family offices to make informed and strategic investment decisions that align with their long-term goals and values.

Advocating for robust reputational due diligence is not just a best practice, it is an essential element in safeguarding the interests and legacy of family offices in an increasingly complex investment environment.

Indeed, a new generation of software tools and resources is giving law firms access to a much more expansive pool of information, from court records and business ownership data to financial records and real-time feeds for denied persons, sanctioned parties, and adverse media.

A new ¶¶ŇőłÉÄę report, , explores how law firms around the world are incorporating these tools and resources into their practices, and why law firms may soon be required to utilize even more thorough methods of due diligence, either out of business necessity or by legal obligation.

Methodology and findings

For the report, ¶¶ŇőłÉÄę surveyed more than 50 legal professionals and top law-firm decision-makers from around the world. Respondents were asked a broad range of questions about how their firms conduct due diligence, what investigative tools they use and why, and how cloud-based technology platforms have — or have not — changed their approach to communications and investigations of all kinds.

Some of the key findings in the report include:

• • • 90% of survey respondents said they are personally involved in conducting or managing due diligence when investigating parties for litigation.
    • Vetting new clients and vendors is largely an administrative matter that does not involve attorneys directly.
    • More than one-third (36%) of law firms screen more than 50 parties per month.
    • Fewer than 10% of law firms re-screen vendors and clients on an annual basis.
    • Most firms do not use the sort of advanced information resources that provide real-time feeds and updates on government watch lists and adverse media — but more than half (56%) said they are interested in it.
    • Even at firms where client information is stored on a centralized, cloud-based platform, communication tends to remain siloed in practice areas, often resulting in redundant searches for the same information.
    • Most law firms use a combination of information resources for due diligence, but very few use all the resources available to them.

The future of due diligence

The report also discusses the future of legal due diligence and why law firms may soon be required to develop more rigorous procedures for client and vendor in-take. In particular, the report looks at efforts in the United States and elsewhere to enact legislation requiring law firms to implement methods similar to the know-your-customer (KYC) protocols that financial institutions currently use in order to prevent money laundering and other financial crimes.

These initiatives are part of an ongoing effort by governments and law enforcement agencies to require lawyers and other financial intermediaries to take greater responsibility for gathering information on clients and, if warranted, disclosing to federal authorities any suspicious financial activity in which their clients may be involved.

Even if law firms ultimately are not required by law to provide authorities with sensitive information about their clients — information that has historically been protected by attorney/client privilege rules — law firms in the U.S., the European Union, and elsewhere are certainly being encouraged (and in some cases required) to help authorities combat financial crimes. Further, the economic and reputational risk of associating with criminal actors has never been higher, so it is in a law firm’s own best interests to know who their clients are and what risks they pose.

For these and many other reasons, law firms — especially large ones — are upgrading their technology infrastructures to enhance their due-diligence capabilities and protect themselves. However, this report also highlights the growing risks to firms that have not yet embraced more advanced technologies for data-sharing and due diligence.

A blueprint for change

As the report makes clear, technology impacts the legal profession in many different ways, but scant attention has been given to how law firms can improve their due-diligence capabilities or why they may need to.

The new report discusses these issues in depth and provides both a rationale and a blueprint for those law firms that want to take maximum advantage of the technological resources available to them. And for those firms that feel they are falling too far behind the technological curve, the report discusses immediate steps they can take to assess their current due-diligence practices and identify information gaps and communications inefficiencies that, if addressed, could improve their investigative capabilities.

You can see a full copy of the report, here.