Sectoral guidelines for correspondent banks

Sectoral guidelines for correspondent banks. EBA has published the final Guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 on simplified and enhanced customer due diligence. The Risk Factors guidelines give an overview on the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions.

The Risk Factors Guidelines – Sectoral guidelines for correspondent banks

In line with the FATF’s standards, Directive (EU) 2015/849 puts the risk-based approach at the centre of the European Union’s anti-money laundering (AML) and countering financing of terrorism (CFT) regime. It recognises that the risk of money laundering and terrorist financing (ML/TF) can vary and that Member States, competent authorities, and credit and financial institutions within its scope (‘firms’) have to take steps to identify and assess that risk with a view to deciding how best to manage it.

The sectoral guidelines on correspondent banking are as follows.

This chapter provides guidelines on correspondent banking as defined in Article 3(8)(a) of Directive (EU) 2015/849. Firms offering other correspondent relationships as defined in Article 3(8)(b) of Directive (EU) 2015/849 should apply these guidelines as appropriate.

In a correspondent banking relationship, the correspondent provides banking services to the respondent, either in a principal-to-principal capacity or on the respondent’s customers’ behalf. The correspondent does not normally have a business relationship with the respondent’s customers and will not normally know their identity or the nature or purpose of the underlying transaction, unless this information is included in the payment instruction.

Banks should consider the following risk factors and measures alongside those set out in Title II of these guidelines.

Risk factors – Sectoral guidelines for correspondent banks

Product, service and transaction risk factors

The following factors may contribute to increasing risk:

• The account can be used by other respondent banks that have a direct relationship with the respondent but not with the correspondent (‘nesting’, or downstream clearing), which means that the correspondent is indirectly providing services to other banks that are not the respondent.
• The account can be used by other entities within the respondent’s group that have not themselves been subject to the correspondent’s due diligence.
• The service includes the opening of a payable-through account, which allows the respondent’s customers to carry out transactions directly on the account of the respondent.
• The account can be used by other entities within the respondent’s group that have not themselves been subject to the correspondent’s due diligence.
• The service includes the opening of a payable-through account, which allows the respondent’s customers to carry out transactions directly on the account of the respondent.

The following factors may contribute to reducing risk:

• The relationship is limited to a SWIFT RMA capability, which is designed to manage communications between financial institutions. In a SWIFT RMA relationship, the respondent, or counterparty, does not have a payment account relationship.
• Banks are acting in a principal-to-principal capacity, rather than processing transactions on behalf of their underlying clients, for example in the case of foreign exchange services between two banks where the business is transacted on a principal- to-principal basis between the banks and where the settlement of a transaction does not involve a payment to a third party. In those cases, the transaction is for the own account of the respondent bank.
• The transaction relates to the selling, buying or pledging of securities on regulated markets, for example when acting as or using a custodian with direct access, usually
• through a local participant, to an EU or non-EU securities settlement system.
   

   

Customer risk factors

The following factors may contribute to increasing risk:

• The respondent’s AML/CFT policies and the systems and controls the respondent has in place to implement them fall short of the standards required by Directive (EU) 2015/849.
• The respondent is not subject to adequate AML/CFT supervision.
• The respondent, its parent or a firm belonging to the same group as the respondent has recently been the subject of regulatory enforcement for inadequate AML/CFT policies and procedures and/or breaches of AML/CFT obligations.
• The respondent conducts significant business with sectors that are associated with higher levels of ML/TF risk; for example, the respondent conducts significant remittance business or business on behalf of certain money remitters or exchange houses, with non-residents or in a currency other than that of the country in which it is based.
• The respondent’s management or ownership includes PEPs, in particular where a PEP can exert meaningful influence over the respondent, where the PEP’s reputation, integrity or suitability as a member of the management board or key function holder gives rise to concern or where the PEP is from a jurisdictions associated with higher ML/TF risk. Firms should pay particular attention to those jurisdictions where corruption is perceived to be systemic or widespread.
• The history of the business relationship with the respondent gives rise to concern, for example because the amount of transactions are not in line with what the correspondent would expect based on its knowledge of the nature and size of the respondent.
• The following factors may contribute to reducing risk: The correspondent is satisfied that: • the respondent’s AML/CFT controls are not less robust than those required by Directive (EU) 2015/849;
• the respondent is part of the same group as the correspondent, is not based in a jurisdiction associated with higher ML/TF risk and complies effectively with group AML standards that are not less strict than those required by Directive (EU) 2015/849.

Country or geographical risk factors

The following factors may contribute to increasing risk:

• The respondent is based in a jurisdiction associated with higher ML/TF risk. Firms should pay particular attention to those jurisdictions
• with significant levels of corruption and/or other predicate offences to money laundering;
• without adequate capacity of the legal and judicial system effectively to prosecute those offences; or
• without effective AML/CFT supervision.

The respondent conducts significant business with customers based in a jurisdiction associated with higher ML/TF risk.

• The respondent’s parent is headquartered or is incorporated in a jurisdiction associated with higher ML/TF risk.

The following factors may contribute to reducing risk:

• The respondent is based in an EEA member country.
• The respondent is based in a third country that has AML/CFT requirements not less robust than those required by Directive (EU) 2015/849 and effectively implements those requirements (although correspondents should note that this does not exempt them from applying EDD measures set out in Article 19 of Directive (EU) 2015/849).