19 January 2018
visit http://response.ncr.com

Correspondent banking wilts under weight of compliance red-tape

08 May 2017  |  11332 views  |  1 digital banking

The correspondent banking model governing bank-to-bank relationships is being eviscerated under the increasing weight of compliance challenges, experiencing a 25% drop in global connections over the past eight years, according to research from financial crime vendor Accuity.

Since the financial crisis of 2008, regulators have imposed requirements for greater transparency, established higher liquidity thresholds for banks as well as stepping up enforcement actions on institutions that violate anti-money laundering (AML) regulations.

In 2014, AML penalties peaked at $10 billion compounding the challenges banks face in high-risk geographies. In this climate, the threat to banks of doing business in certain countries potentially outweighs the benefits of services to their clients, says Accuity, even if there may be good business opportunities to pursue.

Businesses in the regions most affected by the de-risking tendency are struggling to access the global financial systems to finance their operations, forcing local banks to use non-regulated, higher cost sources of finance.

The trend is most evident in a steep decline in USD relationships in some major developing economies, particularly in Latin America. On the flip side, Accuity's research shows a sharp increase in RMB relationships forged with institutions in Eastern geographies.

“The irony is that regulation designed to protect the global financial system is, in a sense, having an opposite effect and forcing whole regions outside the regulated financial system," says Henry Balani, global head of strategic affairs at Accuity. "This matters because allowing de-risking to continue unfettered is like living in a world where some airports don’t have the same levels of security screening - before long, the consequences will be disastrous for everyone.”

In November last year, eight Latin American central banks signed up to adopt Swift's sanctions screening service and KYC Registry in an effort to combat the threat posed to the region by de-risking measures imposed in correspondent banking relationships.

Says Balani: “A number of factors have contributed to derisking, the most important being that the risk/reward balance has become unfavourable for large clearing banks and in response they have taken a country/region risk view in deciding who they can do business with. If we want to reverse this trend and begin to ‘re-risk’, then the ‘antidote’ will require more granular level due diligence and proper risk assessments to provide large clearers with the confidence that they can deal with low risk businesses in high risk jurisdictions.”

Comments: (1)

A Finextra member
A Finextra member | 09 May, 2017, 06:06

So How do Ripple and Blockchain overcome this one?  this is just a traditional old fashioned banking problem.... these relationships are very analogue.

Sometimes new solutions cannot solve old problems.  SWIFT may have the answer - they have the history.  Be interesting to see how this pans out

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Latin American banks turn to Swift to combat de-risking threat

Latin American banks turn to Swift to combat de-risking threat

04 November 2016  |  6489 views  |  1 comments | 5 tweets | 11 linkedin
ANZ and Wells Fargo test distributed ledger tech for correspondent banking

ANZ and Wells Fargo test distributed ledger tech for correspondent banking

10 October 2016  |  19145 views  |  0 comments | 39 tweets | 50 linkedin
Swift signs 73 banks to global payments initiative

Swift signs 73 banks to global payments initiative

28 June 2016  |  13325 views  |  0 comments | 22 tweets | 26 linkedin
Swift bids to save correspondent banks from extinction

Swift bids to save correspondent banks from extinction

10 December 2015  |  12199 views  |  5 comments | 21 tweets | 50 linkedin

Related company news


Related blogs

Create a blog about this story (membership required)
visit www.capgemini.comvisit www.thomsonreuters.infovisit www.vasco.com

Top topics

Most viewed Most shared
Europe begins Open Banking era in subdued styleEurope begins Open Banking era in subdued...
11075 views comments | 32 tweets | 37 linkedin
Crypto mining threatened by power capacity concernsCrypto mining threatened by power capacity...
10257 views comments | 17 tweets | 18 linkedin
Wells Fargo to close 900 branchesWells Fargo to close 900 branches
9868 views comments | 14 tweets | 16 linkedin
KFC introduces Bitcoin BucketKFC introduces Bitcoin Bucket
9349 views comments | 18 tweets | 16 linkedin
FinTech Scotland appoints new CEOFinTech Scotland appoints new CEO
8377 views comments | 8 tweets | 6 linkedin

Featured job

Competitive base + commission (double OTE)
London, UK

Find your next job