Robust controls are essential when it comes to ensuring compliance and mitigating risk in correspondent banking.
Understanding correspondent banking flows
One in five payments on SWIFT is nested, with banks sending messages on behalf of other institutions in other countries – some of which may be considered high risk.
Compliance Analytics can help by providing insights on the traffic profile that banks receive from their correspondents. Nearly 60 banks – accounting for over half of the total payment flow on SWIFT – are currently using Compliance Analytics.
Compliance Analytics provides insights in four key areas:
- KYC/Customer Due Diligence. Get a view on the type of traffic a bank receives from its counterparties and on the nested traffic behind the counterparty, as well as active, dormant or unused RMAs.
- Sanctions. When messages are received that originate in a country with sanctions, banks can use the tool to verify whether those messages have been stopped by the sanctions filter.
- Affiliate review. Institutions can use Compliance Analytics to look at their own entities in other countries and the type of business they are performing.
- Compliance and investigations. Banks can carry out ad hoc investigations, for example to find out to what extent they are connected to a bank or a country that’s in the press.
SWIFT has also launched Correspondent Monitoring, a new Compliance Analytics module that helps institutions to meet regulatory requirements in the context of monitoring of their correspondents.
This is achieved by looking at a bank’s end-to-end payment flows and applying activity metrics such as the number of nested institutions. Risk scoring is then applied to the data, enabling banks to identify higher risk institutions and transactions.
The tool includes 85 metrics that provide insights and leverage historical averages. A rule engine helps banks detect specific activity patterns, while banks are also provided with raw data and PDF reports giving an overview of activity with a specific counterparty.
Correspondent Monitoring enables you to detect high-risk activity by defining a number of scenarios that you apply to the data.
Leveraging Compliance Analytics
BMO Capital Markets has been using Compliance Analytics for over a year in four different parts of the organisation:
- KYC: to close inactive RMAs and thereby minimise KYC requirements.
- Financial intelligence unit: to isolate transactions from specific organisations, and do deep dives on those particular transactions.
- Special investigations unit: to carry out deep dives on special relationships, using the tool’s investigative capability to put stop flows in place.
- Relationship managers: use information on where payments originate from to talk to banks about potential sales opportunities.
Compliance Analytics is not just an AML tool - it's used for generating business.
DNB Bank was looking for a specialised tool to mintor its correspondents. After exploring the possibility of building an in-house tool, the bank decided to adopt Compliance Analytics.
The product was implemented without any help from the bank’s IT department and without the need to interface with the bank’s payment systems.
The bank used the tool to look at how RMAs were used and was subsequently able to get rid of 30% of its RMAs.
DNB is starting to use Correspondent Monitoring, is developing scenarios for the module and has already started to use the fixed reports in PDF format – which are “very useful, very strong, very comprehensive.”
From larger to smaller institutions
While larger institutions with multiple payment hubs may have been the first to adopt Compliance Analytics, they are not the only ones who are benefiting from the tool. There is an increasing interest among smaller institutions.