Banking standards body consults on new correspondent banking guidelines

Correspondent banking is the provision of ongoing, repetitive banking services by one bank to another.

The Committee's document explains proposed changes to guidelines on the management of risks related to money laundering and financing of terrorism, which were first issued in January 2014.

The proposed revisions follow the publication of guidance on the same subject by the Financial Action Task Force (FATF) in October. The Committee has published the latest guidance to clarify expectations from banking supervisors’ point of view, consistent with the FATF guidance, it said.

The proposed revisions tell banks how to apply a risk-based approach for correspondent banking relationships, recognising that not all correspondent banking relationships bear the same level of risk, the Committee said.

Three risk indicators have been formulated by the Committee. The first is the inherent risk from the nature of services provided to respondent banks, including whether different entities of the respondent bank's group, or third parties, have access to the correspondent account.

The second risk indicator is the characteristics of the bank, including its management, ownership and governance structures, money laundering prevention and detection policies and transaction information collection procedures. Third is the environment in which it operates, including its jurisdiction and that of its subsidiaries and branches, whether third parties have access to the correspondent account, and the quality and effectiveness of banking regulation and supervision in the respondent's country.

These risk indicators have been developed to help banks to conduct risk assessment, and the revisions clarify supervisor's expectation on the quality of payment messages, as well as conditions for using 'know your customer' tools, the Committee said.

"The clarifications are proposed as the international community has been increasingly concerned about de-risking in correspondent banking, since a decline in the number of correspondent banking relationships may affect the ability to send and receive international payments, or drive some payment flows underground," it said.

Banking reform expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com said: "This should be a welcome development for most banks, enabling them to demonstrate where they have 'de-risked' by exiting correspondent relationships for legitimate regulatory reasons rather than on a commercial basis."