GUIDANCE ON CORRESPONDENT BANKING SERVICES
10 2016
15. Although additional CDD measures always apply to cross-border correspondent banking
relationships as described above, correspondent banking relationships may be diverse in nature and
therefore some may be higher risk than others. Financial institutions should therefore recognise the
degree of risk of different types correspondent banking activity, including in activities considered as
higher risks, as described in para. 13 (a).
16. Correspondent institutions, in assessing the risks of their respondent must ensure that the
assessment is sufficiently robust to consider all the relevant risk factors. By doing so, the different
levels of inherent risks are clearly understood and appropriate controls applied to each, ensuring
the effective management of these risks. Accordingly, the extent to which additional measures
should be applied will vary on a case-by-case basis, depending on the level or type of residual risk,
including the measures the respondent institution has implemented to mitigate its own ML/TF
risks. Factors to consider in assessing correspondent banking risks could include for instance the
respondent institution’s jurisdiction, the products/services it offers and its customer base. It is not
possible to develop a conclusive list of types of higher risk relationships for several reasons. First,
there is no exhaustive list of risk factors that could be used to identify such relationships that would
apply equally to all relationships. Second, both relevant risk factors and applicable risk mitigation
measures must be considered together to form an accurate and comprehensive picture of the risks.
For these reasons, any effort to define what constitutes a higher risk relationship could have the
unintended consequence of encouraging rather than discouraging de-risking by promoting a more
rules-based and tick-the-box approach to risk management. The risk factors included in the Annex II
of the BCBS Guidelines on Sound management of risks related to money laundering and financing of
terrorism
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are examples of factors which correspondent institutions can use when assessing the
risks of their correspondent banking relationships.
17. When entering into a business relationship, as a first step, the correspondent institution
should identify and verify the identity of the respondent institution, using reliable, independent
source documents, data or information (Recommendation 10 (a)). It should also identify and take
reasonable measures to verify the identity of the beneficial owner(s), such that the correspondent
institution is satisfied that it knows who the beneficial owner(s) of the respondent institution is/are.
In order to do that, the correspondent institution should also understand the ownership and control
structure of the respondent institution.
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The information about the ownership and control
structure includes conducting verification enabling the correspondent institution to be satisfied that
the respondent institution is not a shell bank.
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18. Additionally, the correspondent institution should gather sufficient information to
understand the purpose and intended nature of the correspondent banking relationship with the
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Para 7.
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FATF Recommendation 10, sub-paragraph 4(a) and (b)
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FATF Recommendation 13 prohibits financial institutions from entering into correspondent banking
relationships with shell banks. The Glossary to the FATF Recommendations defines the term shell bank to
mean a bank that has no physical presence in the country in which it is incorporated and licensed, and which
is unaffiliated with a regulated financial group that is subject to effective consolidated supervision. Physical
presence means meaningful mind and management located within a country. The existence simply of a local
agent or low level staff does not in itself constitute physical presence.