The international body responsible for keeping an eye on financial stability has today warned anti-money laundering rules need a rethink to help support a significant but shrinking sub-sector of the banking industry.
In its latest progress report on the decline in correspondent banking – essentially the middlemen who can provide services, such as wire transfers or on an international basis, for other financial institutions – the Financial Stability Board (FSB) noted the Financial Action Task Force (FATF) had determined not all relationships between clients carried the same level of risks and firms could take a more bespoke approach in what due diligence work they perform.
FATF has already published guidance to confirm that correspondent banks do not have to conduct so-called know your customer's customers work for the clients of their banking customers, and will finalise work it has been carrying out on definitions in the sector next June.
Meanwhile, the Basel-based FSB, which is chaired by Bank of England governor Mark Carney, is due to publish high-level guidance on what jurisdictions could do to better communicate what steps they are taking to tighten up frameworks for anti-money laundering, combat terrorist financing and oversee their financial institutions.
"A well-functioning correspondent banking system is essential for ensuring international payments," said Alexander Karrer, chair of the FSB's Correspondent Banking Coordination Group (CBCG) and deputy state secretary at the Swiss Federal Department of Finance. "A decline in correspondent banking relationships can adversely affect growth, financial inclusion, remittances flows as well as the stability and integrity of the global financial system."
A survey on trends within the correspondent banking industry is due to be published by CBCG next April, while a further progress report will be published ahead of July's G20 Leaders' Summit in Hamburg.