Regulatory challenges for Correspondent Banking
Correspondent Banking is structurally highly sensitive to money landering and terrorism financing risks, requiring strong compliance controls framework
Correspondent banking is the cornerstone of international finance, relying on a network of banks
These complex networks operate cross borders financial transactions between correspondent banks and their respondent banks, often with rebounds making difficult to know the first originator or to reach the ultimate beneficiary
CBK business is structurally highly sensitive to Money Laundering and terrorist financing risks, requiring strong compliance control frameworks:
- Internal AML & CFT controls to monitor transactions passing through their accounts and KYC process for underlying customers
- Reinforced due diligence process when selecting the correspondent banks of its network and following up their control set up, with possibilities to request information from time to time
In this context, correspondent banks have to find the right balance between 2 models:
- Adopt a de-risking strategy by reducing their correspondent network
- Reinforce and optimize their controls framework to comply with compliance standards while limiting the costs
3 levers to address these regulatory challenges
Business Strategy
- Correspondent banking network strategy is highly dependent from international development strategy of the bank: strong coordination with other business lines is required to optimize network in a de-risking context
- CBK Relationship Managers role needs to evolve and include in their objectives periodic due diligence review of the correspondent banks of their portfolio
Organization
- Define a clear governance and responsibilities to manage correspondent banking activity, often scattered among several department
- Reinforce collaboration between the Business and Compliance for a stronger relationship
- Standardize compliance control framework, and especially transaction monitoring processes and tools for all entities
Technology and data
- Streamline vetting processes to minimize costs
- Identify Artificial Intelligence solutions to enhance transaction monitoring
- Evaluate the opportunity to participate in market initiatives (e.g., SWIFT KYC registry)
How we can help
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Regulatory Awareness
Understanding the ins and outs of regulatory texts
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Framing study
Measuring what are the compliance and business impacts
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Gap analysis
Identifying gaps (governance, data, IT…)
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Roadmap for implementation
Building implementation roadmaps taking into account regulatory constraints
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Remediation plan
Supporting remediation plan / Implementating remediation actions