Financial Crime World

The Importance of Correspondent Banking in International Payments

Correspondent banking plays a vital role in facilitating international payments by enabling banks in one country to provide payment services on behalf of their customers located in another country. This relationship between banks in different countries facilitates cross-border transactions, acting as an intermediary between two countries’ financial systems.

The Consequences of Losing Access to Correspondent Banking

Losing access to correspondent banking can have severe consequences for individuals and businesses:

  • Financial exclusion: Without access to correspondent banking services, it may be difficult to conduct international transactions, leading to financial exclusion.
  • Driving payment flows underground: The lack of reliable and secure cross-border payment channels might force some payment flows to operate outside the formal financial system, increasing the risk of money laundering and terrorist financing.

Addressing the Challenges

To address these challenges, the G20 Leaders approved a four-point action plan at the November 2015 Antalya Summit:

Action Plan Points

  1. Examine the dimensions and implications of the decline in correspondent banking
  2. Clarify regulatory expectations, including through guidance by the FATF
  3. Expand domestic capacity-building in jurisdictions that are home to affected respondent banks
  4. Strengthen tools for customer due diligence by correspondent banks

Implementation and Coordination

The FSB created a Correspondent Banking Coordination Group (CBCG) and four workstreams of technical experts to coordinate the implementation of these action points.

Understanding the Evolution of Bank Account Closures

The World Bank is conducting surveys to better understand the evolution and drivers of bank account closures or restrictions, in the context of correspondent banking relationships and money and value transfer services (remittances).

FATF Guidance on De-Risking

The FATF issued public statements on de-risking in October 2014, June 2015, and October 2015, clarifying its approach to this issue. The risk-based approach requires financial institutions to identify, assess, and understand their money laundering and terrorist financing risks, and implement AML/CFT measures that are commensurate with the identified risks.