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De-risking and financial inclusion

De-risking and financial inclusion

Financial Crime Compliance,
11 April 2017

Community engagement can aid banks in addressing the challenges posed by de-risking, and SWIFT is here to help

Correspondent banking relationships (CBRs) play an essential role in economies around the world, enabling local banks to access overseas products and carry out cross-border transactions. But while such relationships are an important feature of the global banking landscape, they are not set in stone.

Over the last couple of years, correspondent banks have chosen to restrict or terminate their relationships with local banks in a variety of markets. The term “de-risking” has been widely used to describe this phenomenon, in which many banks around the world have seen their CBRs terminated.

It is becoming increasingly clear that this trend is at odds with global goals for financial inclusion and that the withdrawal of services is forcing some customers to make payments using less regulated channels.

SWIFT is working closely with banks of all sizes and locations to provide services that help to understand and address risks while enhancing compliance transparency, effectiveness and efficiency.

In an article in the April edition of ACAMS Today magazine, SWIFT’s Paul Taylor and Juan Martinez outline steps banks in higher-risk jurisdictions can take to help protect themselves and their CBRs. These include:

  • Working with regional development banks, central banks and industry associations to understand the specific challenges and how best to address these.
  • Ensuring that you have systems and processes in place to screen transactions, customers and PEPs in line with global compliance standards.
  • Joining an industry KYC utility. In many cases, the decision whether or not to de-risk is a business one. For example, does the business case for maintaining a relationship justify the cost of performing KYC due diligence and other compliance activities?
  • Using data analysis and reporting to demonstrate to your counterparties where your payment flows are coming from and going to (including ‘nested’ relationships).
  • Talking to your correspondent bank proactively to understand their basis for making de-risking decisions. Agree on an action plan to address any concerns and execute this to demonstrate your commitment to transparency and compliance.

Community-driven compliance solutions

SWIFT provides a number of tools to support banks in addressing the challenges posed by de-risking.

The KYC Registry enables banks to contribute and share a standardised set of up-to-date due diligence documents. Joining the Registry and contributing data enables banks to demonstrate transparency and significantly reduce the cost and effort associated with KYC due diligence.

Sanctions Screening is an easy to use, cost-effective SWIFT-hosted tool that screens all types of financial transactions in a standardised way. Name Screening provides hosted screening of customer, vendor and employee names against public, private and PEP lists. Used together, they enable banks to prevent illicit transactions and keep bad actors from using their services.

Correspondent banks wanting to better understand and manage risk can use Compliance Analytics to leverage their SWIFT message data for unparalleled insight into their global banking flows. This enables them to monitor and address financial crime risk with pinpoint precision.

Payments Data Quality is an advanced reporting and data analytics service from SWIFT. Banks use it to evaluate the quality of originator and beneficiary information in SWIFT payment messages across their global operations and with correspondents. This supports compliance with FATF Recommendation 16-related requirements, along with increased transparency, screening effectiveness, straight-through processing and payments efficiency.