Correspondent banking relationships have been terminated because financial institutions are de-risking due to anti-money laundering and counter financing of terrorism (AML/CFT) rules according to a report published by the European Banking Authority (EBA).
Respondent banks that contributed to the EBA report on de-risking and its impact on access to financial services said decisions to end correspondent relationships are being made by financial institutions regardless of the respondent banks’ individual AML/CFT efforts.
Wholesale de-risking
Respondent banks that have lost their corresponding banking relationships claimed that the decisions made to end the business relationships were based on certain characteristics. These included banks operating in high-risk jurisdictions or jurisdictions grey-listed by the Financial Action Task Force.
Decisions made to end the business relationships were made “irrespective of the banks’ individual AML/CFT efforts” the report says.
Consequences
The termination of the business relationship can lead to a loss of access to US dollar and/or euro clearing, as well as to cash management services and international payment services according to the report.
It says the termination also led to reputational damage, and in light of widespread closures of correspondent bank relationships and the associated risk of losing access to dollar clearing in particular.
Some respondent banks took steps to lower their risk profiles by turning down or closing business relationships.
Business closures
Where decisions were made to end an existing business relationship, several respondents complained that the two or three months notification provided by financial institutions before the termination of the business relationship was not sufficient the report says.
It found that for those respondents that did not find alternatives in the meantime, a decision to terminate a correspondent business relationship led to disruptions in business continuity, such as account closures, loss of customers and, ultimately, closure of business.
The EBA report on de-risking and its impact on access to financial services can be found here.
Categories: Trade Based Financial crimes News
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