CATF Reports Dec. 28, 2016, 9:47am


The Financial Stability Board (FSB), an international body for the G20 economies that monitors the global financial system, is under pressure to balance measures aimed at reversing an extended decline in correspondent banking around the world with the need for strict checks on money laundering and terrorism financing. Many lenders, in Europe and the U.S., have cited the burdensome checks as cause for withdrawal from a cross-border relationship with another bank, a trend that has contributed to a clear downward trend in correspondent banking. The FSB released its plan on December 19th to trigger an uptick in correspondent banking while maintaining checks on criminal activities by improving data on correspondent banking, clarifying previous misunderstandings of FSB requirements, and proposing new ways to make checks less demanding.

A decline in correspondent banking threatens to adversely affect economic growth by stalling remittances critical to many emerging markets and undercutting an important aspect of the global financial system, the ability to send and receive overseas payments. Cognizant of the impacts of its regulations on correspondent banking, the FSB has acted to revive correspondent banking without allowing criminal and terrorist groups to benefit from easier access to funds. For example, FSB reassured regulators that they are not required to conduct due diligence on the customers of the correspondent bank before authorizing a payment and claimed that regulators will develop a shared system among all banks to streamline due diligence on customers.

By April 2017, FSB will release the results of an industrywide survey of more than 300 banks aimed at measuring the effect of changes on correspondent banking relationships. Also, the FSB will publish recommendations for countries to attract foreign banks by demonstrating efficient anti-money laundering and terrorism financing restrictions. Over the next several months, trends in correspondent banking relationships will show whether or not the FSB’s balanced approach will be successful in revitalizing a critical aspect of the global financial system.

From Reuters:

“Global regulators have stepped up efforts to reverse a decline in cross-border links between banks that are critical for people to send money abroad.

So-called correspondent banking has come under intense regulatory scrutiny to stop money laundering and terrorism financing, prompting some lenders in Europe and the United States to withdraw, saying that the tougher checks on customers are too burdensome.”

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