27 February 2017

Banking low-risk clients in high-risk jurisdictions

Experts discuss managing correspondent relationships in a highly regulated world

In recent years, many banks have reduced their correspondent banking relationships in a trend known as ‘de-risking’. Panellists at Sibos 2016 explored the implications of de-risking, possible solutions – and whether it is still possible to bank low-risk clients in high-risk jurisdictions in the current climate.

Download the info paper ‘Banking low-risk clients in high-risk jurisdictions’ to learn more.

An eclectic panel of experts outlined factors driving de-risking activities. Banks face a much higher regulatory burden than previously, with tax issues, AML requirements and international sanctions all contributing to the cost and effort of compliance. Recent fines may also have prompted some banks to rethink continued operations in certain markets.

However, not all decisions to exit relationships are entirely risk-driven. The panellists noted that concerns about profit margins also contribute to the trend. In a low interest rate environment, correspondent banking is a lower margin business. Some banks may see the current climate as an “opportunity to get out of a loss leader,” one expert noted.

While panellists asserted the right of banks to decide who they do business with, they noted that the downside of de-risking should not be minimised. Individuals, countries and regions face the risk of financial exclusion. And, monetary flows may be squeezed outside of the global financial system, decreasing transparency and making it even more difficult to detect and prevent financial crime.

What banks can do

Evolving sanctions regimes and a levelling-off of de-risking activities in some markets presents banks with a dilemma: whether to ‘re-risk’ by (re)banking trustworthy counterparts in high-risk markets.

Panellists put forward several approaches for banks to consider when banking low-risk clients in high-risk jurisdictions.

  • Banks in highly regulated markets can work with their regulators to set achievable and realistic standards.
  • Dialogue should take place between correspondents and respondents that may be at risk, to develop an action plan for addressing regulatory requirements.
  • Banks in high-risk markets should endeavour to comply with international standards, and foster greater engagement with regulators.
  • Banks in high-risk markets should join KYC utilities such as SWIFT’s KYC Registry to demonstrate transparency and compliance and reduce due diligence costs. This can help tilt the business case in the direction of maintaining correspondent relationships, experts said.

Read the full info paper

Sibos in review: Banking low-risk clients in high-risk jurisdictions

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Last update: 
27 January 2017

Compliance experts at Sibos 2016 explored the implications of de-risking and the possible solutions.

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Relive the Financial Crime Compliance conversation from Sibos 2016

The Compliance stream at Sibos 2016 Geneva provides delegates with insights into financial crime compliance – and how SWIFT can help. Hear...
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