Correspondent banking
Also called correspondent relationship, correspondent account
Correspondent banking is the provision of accounts and payment services by one bank, the correspondent, to another bank, the respondent. It lets the respondent make cross-border payments, clear cheques and trade currencies in markets where it has no branches. The correspondent processes payments for customers it has never met.
How it works
Before opening a relationship, the correspondent gathers information on the respondent's ownership, business, reputation and supervision. It assesses the respondent's AML controls, often through a standard questionnaire, and gets senior management approval. Once live, it monitors the payment flows passing through the account and asks the respondent about unusual activity.
Correspondent banking matters because the correspondent relies on the respondent's checks on its own customers. Weak controls at the respondent can bring illicit funds into the global system. Rules ban relationships with shell banks. Since the mid-2010s many large banks have cut correspondent relationships in higher-risk regions.
The rules
Requires enhanced due diligence for correspondent relationships with third-country respondents and prohibits relationships with shell banks.
UK credit and financial institutions with correspondent relationshipsArticles 36 to 39 set enhanced due diligence for cross-border correspondent relationships with third-country respondents and ban relationships with shell institutions.
Credit and financial institutions and other obliged entities in the EURequire due diligence on correspondent accounts for foreign financial institutions and prohibit correspondent accounts for foreign shell banks.
US banks and other covered financial institutions with foreign correspondent accountsCommon questions
What is a nested correspondent relationship?
Nesting happens when a respondent bank lets other banks use its correspondent account to reach the correspondent. The correspondent then processes payments for banks it has not assessed. Rules and guidance expect correspondents to identify and manage nested activity.
What is a payable-through account?
A payable-through account lets the respondent's own customers transact directly through the correspondent's account. UK and EU rules require the correspondent to be satisfied that the respondent has verified those customers and can provide their due diligence data on request.
What is de-risking in correspondent banking?
De-risking means closing or refusing relationships with whole categories of respondents, often in higher-risk regions, rather than managing risk case by case. It reduces payment access for some countries. Supervisors expect firms to assess respondents case by case.
