November 16, 2018

FSB published two reports on its work to assess and address the decline in correspondent banking relationships. One report presents updated data on trends in correspondent banking relationships using data provided by SWIFT as of end-2017 and the other is a progress report (to be delivered to the G-20 Summit) on the four-point action plan of FSB to assess and address the decline in correspondent banking.

Report on correspondent banking data. The report shows that the decline in the number of active correspondents, as measured by the flow of SWIFT payment messages, continued in 2017, with a year-on-year reduction of 4.1%. All continents or sub-continents saw a decline in the number of active correspondents in 2017, with the rate of decline being between 5.2% and 6.7%—except in Northern America where it was 2.9%. From January 2011 to end-2017, the number of active correspondents declined globally by 15.5%. Small economies with a Gross Domestic Product (GDP) of less than USD 10 billion have seen a stronger decline in the number of foreign counterparties as per local banks (-23.4%), compared with economies with a GDP of between USD 10 billion and 1 trillion (approximately -18%) and economies with a GDP of above USD 1 trillion (-8.4%). The decline in small economies has not affected, on average, the total volume and value of payment messages they received; these have increased more for small economies compared to the larger economies.

Progress report on assessing and addressing decline in correspondent banking. The progress report highlights the further actions taken to implement the four-point action plan of FSB on correspondent banking since the FSB’s March 2018 update. These include the following:

  • Strengthening tools for due diligence by correspondent banks—The report notes the commitment of large banks to implement the Wolfsberg Group Correspondent Banking Due Diligence Questionnaire by the end of 2019. FSB continues to encourage the industry to use the questionnaire to achieve greater efficiencies and improved standardization in Know Your Customer utilities. Another important technical step is the recommendation by SWIFT to start the migration to the new ISO 20022 message format in correspondent banking in November 2021, which will support enhanced transparency, including through the use of the Legal Entity Identifier (LEI) for the unambiguous identification of originators and beneficiaries of cross-border payments. The recently launched FSB peer review on LEI implementation will help to identify and address any remaining obstacle to the effective use of the LEI in that field.

  • Clarifying regulatory expectations—The Financial Action Task Force (FATF) and BCBS have conducted surveys of their memberships to assess the transmission and traction of their guidance on correspondent banking. While there generally has been a high level of dissemination of the guidance, some national authorities may need to do more.

  • Domestic capacity building—FSB recently held a workshop, involving both public- and private-sector participants, on the coordination and prioritization of capacity development, including to strengthen domestic compliance with Anti-Money Laundering and Countering the Finance of Terrorism Public standards. FSB is also exploring—with the World Trade Organization, International Finance Corporation, and multilateral development banks—how solutions developed to address the reduction in correspondent banking relationships might also be used in the context of trade finance.

With the international components of the correspondent banking action plan largely in place, the focus of FSB is now turning to monitoring, through its membership, of implementation and of developments. Access to correspondent banking relationships remains a critical issue in some regions and jurisdictions. Should the situation deteriorate further, FSB, the relevant standard-setting bodies, and other stakeholders, including international organizations and the private sector, would consider whether further actions should be taken to address the issue. FSB, FATF, Global Partnership for Financial Inclusion (GPFI), IMF, and World Bank are also monitoring the take-up of the FSB’s March 2018 recommendations on remittance service providers’ access to banking services and will report to the G-20 in June 2019 on actions taken.

 

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Keywords: International, Banking, Correspondent Banking, Progress Report, FSB

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