13 July 2016

BIS: Five recommendations to ease correspondent banking costs and concerns - CPMI

Five recommendations to help alleviate some of the costs and concerns affecting correspondent banking activities were set out in a report released by the Committee on Payments and Market Infrastructures.

Until recently, banks have maintained a broad network of correspondent relationships, but there are growing indications that this situation might be changing. This implies a threat that cross-border payment networks might fragment and that the range of available options for these transactions could narrow.

Correspondent banking is an essential component of the global payment system, especially for cross-border transactions. Through correspondent banking relationships, banks can access financial services in different jurisdictions and provide cross-border payment services to their customers, supporting, inter alia, international trade and financial inclusion.

The Correspondent banking report provides some basic definitions, outlines the main types of correspondent banking arrangement, summarises recent developments and touches on the underlying drivers.

The report develops recommendations on certain measures relating to:

• know-your-customer (KYC) utilities;
• use of the Legal Entity Identifier (LEI) in correspondent banking;
• information-sharing initiatives;
• payment messages; and
• use of the LEI as additional information in payment messages.

The report contains a quantitative analysis using SWIFT transaction data on correspondent banking activities. The data set comprises more than 200 countries and territories, and the analysis shows a trend towardsconcentration in correspondent banking activity as measured by payment traffic.

CPMI believes that, as the next step towards implementation, these measures should be further analysed by all relevant authorities and stakeholders in order to gauge the potential impact of each measure and to avoid unintended consequences. The CPMI expects that the relevant stakeholders will initiate any necessary reviews or investigations in the light of the five recommendations as soon as possible.

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