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FATF Guidance Seeks To Stem Bank De-Risking Crisis

by Mike Godfrey, Lowtax.net, Washington
26 October, 2016

The Financial Action Task Force has released guidance it has developed to respond to the decline in correspondent banking relationships, which is a key issue for many Caribbean financial centers.

The decline in correspondent banking relationships follows decisions from leading international commercial banks to withdraw relationships with financial institutions in certain countries to reduce regulatory risk, in a practice commonly referred to as de-risking.

The guidance from FATF, which is the international standards setter for anti-money laundering and countering the financing of terrorism standard, clarifies the organization's expectations for banks in terms of Know-Your-Customer's-Customer (KYCC) requirements. It acknowledges that these have caused a lot of confusion.

The guidance says that financial institutions are not required to conduct customer due diligence on the customers of their customer. In a correspondent banking relationship, the correspondent institution should monitor the respondent institution's transactions with a view to detecting any changes in the respondent institution's risk profile or implementation of risk mitigation measures.

Where any unusual activity or transaction on the part of the respondent is detected, or there is any deviation from the agreed terms of the arrangements governing the correspondent relationship, the correspondent institution should follow up with the respondent institution by making a request for information on any particular transaction(s), the guidance states.

This may possibly lead to more information being requested on a specific customer or customers of the respondent bank.

There is no expectation, intention, or requirement for the correspondent institution to conduct customer due diligence on the respondent institution's customers, it confirms.

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