Correspondent banking can be broadly defined as the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). In January 2015, the Financial Stability Board (FSB) agreed to coordinate work to examine the extent and causes of banks’ withdrawal from correspondent banking and the implications for affected jurisdictions including for financial exclusion, and to identify possible policy responses to address this issue.
The FSB has now published a report to the G20 that describes the action that a number of international organisations have taken to assess and address the decline in correspondent banking. Whilst the decline in correspondent banking is not on a global scale a World Bank survey of jurisdictions and banks commissioned by the FSB has confirmed that roughly half of the emerging market and developing economy jurisdictions surveyed have experienced a decline in correspondent banking services.
The FSB states that it will continue in partnership with various international organisations to address the decline in correspondent banking through a 4-point action plan:
- further examine the dimensions and implications of the issue. The World Bank is publishing in November the results of its correspondent banking survey, together with a report commissioned by the G20 on remittances;
- clarifying regulatory expectations, as a matter of priority, including more guidance by the Financial Action Task Force (FATF) on the application of standards for anti-money laundering and combating the financing of terrorism to correspondent banking, especially on the customer due diligence expectations for correspondent banks when faced with respondent banks in “high-risk scenarios”, as well as additional work on remittances, financial inclusion and non-profit organisations;
- domestic capacity building in jurisdictions that are home to affected respondent banks, building upon assessments and technical assistance from the international financial institutions, the FATF and FATF-style regional bodies and the sharing of best practices within the financial industry; and
- strengthening tools for due diligence by correspondent banks. This includes correspondent bank information sharing, through Know Your Customer facilities and broader use of the global legal entity identifier.