While financial inclusion is a top priority for emerging economies, new research suggests more stringent enforcement of anti-money regulations in recent years has resulted in major Western banks disconnecting from these regions, leaving local businesses without access to the international financial system.

Correspondent banking relationships, where a financial institution provides services on behalf of another to facilitate cross-border payments, have declined globally by 25 percent since 2009 despite the fact that global GDP per capita grew during the same period, US-based financial services firm Accuity announced yesterday. It attributed the drop to large Western financial institutions “de-risking”, a practice in which financial institutions exit relationships with clients or markets perceived to be at high risk of money laundering or terrorist financing.

The practice has increased since the 2008 global financial crisis as a result of tighter anti-money laundering (AML) regulations and banks’ reduced appetite for risk, with many financial institutions opting to sever correspondent banking relationships in order to reduce their costs and risk exposure.

AML penalties peaked at $10 billion in 2014, compounding the challenges banks face offering correspondent banking services to their local customers.

“In this climate, the threat to banks of doing business in high-risk geographies potentially outweighs the benefits of services to their clients, even if there may be good business opportunities to pursue,” Accuity said in a press release.

Commenting on the findings, Henry Balani, global head of strategic affairs at Accuity, said de-risking has worrying consequences on international trade and global banking.

“The irony is that regulation designed to protect the global financial system is, in a sense, having an opposite effect and forcing whole regions outside the regulated financial system,” he said.

“This matters because allowing de-risking to continue unfettered is like living in a world where some airports don’t have the same levels of security screening before long, the consequences will be disastrous for everyone.”

According to the research, businesses in the regions most affected by de-risking are struggling to access the global financial system, driving legitimate capital into riskier environments while pushing illicit activity further underground.

“Without this access, local banks are forced to use non-regulated sources of finance and expose themselves to nefarious actors and shadow banking,” Accuity said.

Yet while US and European banks have been scaling back correspondent banking relationships, a handful of countries have seen an upswing in these relationships to support their rapidly expanding economies.

China, for instance, has experienced a 133 percent increased in the number of banks since 2009, while the number of its correspondent banking relationships grew an astounding 3,355 percent during the period. The growth has coincided with a dramatic increase in the number of Chinese renminbi (RMB) relationships, albeit from a low base, as the currency gains traction in international markets.

Cambodia has also bucked the global trend, with the number of correspondent banks growing from just one in 2012 to 12 by the end of 2016. During that time, according to Accuity, the number of US dollar correspondent banking relationships increased from 99 to 134, while RMB relationships grew from one to 18.

So Phonnary, executive vice president and group COO of Acleda Bank, which provides correspondent banking services to over a dozen international banks and handles nine currencies, said the growth of these relationships is a response to the Kingdom’s rapidly expanding economy and financial sector.

As the number of banks grow they “need to build correspondent banking relationships to provide cross-border payment services to their customers in order to support international trade and financial inclusion”, she explained.