AUSTRAC: The Growing Concern Over Correspondent Banking Relationships
Introduction
In a move to address the dwindling number of correspondent banking relationships (CBRs), AUSTRAC, the Australian Transaction Reports and Analysis Centre, has issued new guidance aimed at countering unnecessary de-risking.
The Issue with CBRs
The issue of CBRs has been gaining global attention since 2013, with various solutions proposed by policymakers. However, despite efforts to implement these solutions, the trend of diminishing CBRs continues. This is particularly concerning for small island economies and regions with limited inter-bank competition.
The Importance of CBRs
CBRs provide the backbone of the international banking system, facilitating cross-border payments and remittance flows. Without a sufficient number of CBRs, banks may be forced to withdraw services from certain countries, leading to higher prices and reduced financial inclusion.
Technology as a Solution
Technology and FinTech can offer powerful alternatives and solutions. Electronic Know Your Customer (eKYC) measures and digital ID systems can provide trusted, up-to-date customer information, while data analytics can help demonstrate payment flows and integrity levels.
- Electronic Know Your Customer (eKYC) measures
- Digital ID systems
- Data analytics
Challenges for Small Jurisdictions
However, these solutions require appropriate data protection, cyber security, and consumer protection measures, which may be challenging for small jurisdictions to maintain.
The Impact of De-Risking on the Pacific Islands
The problem of de-risking is particularly pronounced in the Pacific Islands, where several major banking groups have withdrawn services from certain countries. This has led to concerns over the competitiveness of the banking system, remittance costs, and the impact on trade finance.
AUSTRAC’s New Guidance
In response, AUSTRAC has issued new guidance aimed at countering unnecessary de-risking. The guidance is part of a broader effort by global policymakers to address the issue of CBRs and ensure that small island economies can maintain access to financial services.
Conclusion
The issue of correspondent banking relationships is complex and multifaceted. To effectively address it, policymakers must understand the root causes of de-risking, its impact on economies and societies, and how to promote more effective risk management practices.
AUSTRAC’s new guidance is a welcome step towards addressing this issue. By promoting better risk management practices and reducing the need for de-risking measures, AUSTRAC hopes to ensure that small island economies can maintain access to financial services and continue to grow and develop.