Global financial regulators are moving to clarify anti-money laundering rules to halt a decline in correspondent banking, which is depriving banks in poorer countries of access to key financial services as big international lenders respond to more requirements for due diligence by cutting off less profitable clients.
The Basel Committee on Banking Supervision will publish revised guidance on correspondent banking by mid-2017, and the intergovernmental Financial Action Task Force, which targets money laundering, will also set out definitions and best practices, the Financial Stability Board said Dec. 19.
The fall in correspondent banking — the provision of services such as cross-border payments by an international bank to another lender — hits economies in places like Africa, the Caribbean, central Asia and elsewhere, potentially driving some payments underground and undermining financial stability, international authorities fear. Wary of massive fines levied on firms including HSBC Holdings Plc for money laundering, big international banks have chosen to cut off less profitable clients in developing nations rather than pay for additional due diligence to check that transactions are legitimate. One report showed that 17 of 23 surveyed Commonwealth developing countries reported losses of correspondent-banking relationships since 2012, the FSB said.
The FSB, which groups major central banks and other financial authorities from around the world, will publish the results of a correspondent-banking survey covering 300 banks in some 50 jurisdictions by April and will also publish recommendations for banks in the developing world to convince their correspondent bankers that they are guarding against money laundering and terrorist financing.
The Financial Action Task Force has already published guidelines making it clear that international banks do not have to perform due diligence on their correspondent banks' customers.