Correspondent banking plan includes new AML measures

New measures related to anti-money laundering and counter-terrorism financing (AML/CTF) practices for financial institutions (FIs) are part of an action plan to address the decline in cross-border links between banks, also known as correspondent banking.
 
The threat of money laundering and terrorist financing have prompted regulators to place more scrutiny on correspondent banking. This regulatory burden has resulted in some FIs, particularly in Europe and the US, withdrawing from such partnerships.
 
In November 2015, the Financial Stability Board (FSB) published a four-point action plan to address the decline in correspondent banking. Two of the key stages of the plan were to clarify regulatory expectations and strengthen tools for due diligence by correspondent banks.
 
Recent steps to implement the plan have included the publication of guidance on correspondent banking by the Financial Action Task Force (FATF).
 
The FATF clarified that its recommendations do not require FIs to conduct due diligence on the customers of their respondent bank clients. It also acknowledged that not all corresponding banking relationships have the same level of money laundering or terrorist financing risk.
 
As far as future developments are concerned, by March 2017 the FSB will offer more guidance on how jurisdictions could more effectively communicate actions taken to improve their AML/CTF frameworks.
 
Alexander Karrer, chair of the FSB's Correspondent Banking Coordination Group (CBCG), stressed that well-functioning cross-border links between banks are a vital part of a successful international payments system.
 
He warned that a decline in correspondent banking relationships could have negative repercussions for economic growth, financial inclusion and remittances.
 
"Since the creation of the CBCG earlier this year, good progress has been made to assess and address this issue, but additional steps are needed to move from awareness raising to action," Mr Karrer added.
 
"Given the number of actors involved, international cooperation and coordination are key."

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