International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, November 3, 2016

Developments in the decline of correspondent banking relationships

The decline in correspondent banking relationships, or de-risking, has been a concern for the FATF since 2014.  Some financial institutions have decided to close their corresponding banking relationships with whole classes of customers or entire regions, in order to avoid, rather than mitigate, money laundering terrorist financing risks. This is not in line with the FATF’s risk-based approach, which is central to the FATF Recommendations. De-risking can lead to financial exclusion, by depriving customers from access to the regulated financial sector for their financial transactions. The loss of correspondent banking relationships makes it harder to make cross-border payments in some countries, and can potentially damage the resilience and stability of the financial system.

The FATF is working closely with other relevant organisations such as the Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures (CPMI), the International Monetary Fund (IMF), the World Bank and others, to understand the various drivers for de-risking and clarify the application of the risk-based approach.

Approval of the guidance on correspondent banking services

Responding to concerns by global leaders, including the G20, about a need for further clarification of regulatory expectations, FATF has approved a guidance on corresponding banking services.  Correspondent banking services have an important role in the global economy and to the many sectors and regions that rely on them.  An incorrect understanding of AML/CFT measures, can increase the costs of doing business with correspondents, and cause unnecessary pressure on banks to end correspondent relationships.  This guidance addresses the issue of de-risking and clarifies how money laundering and terrorist financing risks should be managed, customer-by-customer, in the context of correspondent banking relationships and money or value transfer services that provide similar services. The FATF developed this guidance in collaboration with the private sector, and with the FSB, which is coordinating international work to assess and address the extent and causes of the decline in correspondent banking relationships.

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Download the guidance  (pdf)

 Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod-us-ebook-01701-epub#sthash.Bts3dMm7.dpuf

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