US publishes fact sheet on compliance in correspondent banking relationships

An official fact sheet has been published providing guidance on how US financial institutions should manage correspondent banking arrangements with foreign financial institutions (FFIs).

It specifically contemplates how these relationships should be managed within a regulatory framework that includes national anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements in the Bank Secrecy Act (BSA) as well as sanctions programmes administered by the US treasury’s Office of Foreign Assets Control (OFAC).

Jointly produced by the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and the Treasury Department, the fact sheet is entitled ‘Joint Fact Sheet on Foreign Correspondent Banking: Approach to BSA/AML and OFAC Sanctions Supervision and Enforcement’.

Due diligence

Financial institutions based in the US that maintain correspondent accounts for FFIs are required to establish appropriate, specific, and risk-based due diligence policies, procedures, and processes that are reasonably designed to assess and manage the risks inherent in these relationships according to the fact sheet.

It says financial institutions should have robust BSA and OFAC compliance programmes that include appropriate customer due diligence so that institutions have a clear understanding of FFI risk profiles and expected account activity.

Risk management

For US banks to develop a clear understanding of FFI risk profiles and determine how best to manage the risks associated with these relationships they should assess the risks present in an FFI’s business and markets, including the type, purpose and anticipated activity; the nature and duration of the relationship with the FFI and its regulatory environment.

While conceding there is no general requirement for banks to conduct due diligence on an FFI’s customers, the fact sheet stresses that banks should be mindful of the need to assess the risks posed by underlying transactions.

This may involve banks requesting additional information concerning activities underlying the FFI’s transactions and complying with suspicious activity reporting rules and sanctions compliance obligations if required.

The Joint Fact Sheet on Foreign Correspondent Banking: Approach to BSA/AML and OFAC Sanctions Supervision and Enforcement can be found here.

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