When institutions act as correspondents, they rely on their local “respondents” to devise systems that prevent either bank from doing business with criminals or transferring illicit funds.
“These systems have sometimes failed and some international banks, whether deliberately or not, have provided accounts and services to money launderers who were facilitating the activities of drug gangs and terrorists. Having rightly been punished for this, the banks in question face a choice. They can continue to take on correspondent business and try to mitigate the risk of further infractions. Or they can leave the relevant region or line of business altogether.
Some are opting to do the latter, and communities and businesses in the affected emerging economies may find themselves unable to send or receive money from abroad as a result. Anecdotal reports suggest that charities, and companies involved in remitting funds from overseas, are feeling the pinch.
It would be wrong for regulators to ignore such consequences. Doing so would neglect the purpose of financial reforms by the Group of 20 leading nations intended to underpin an open and resilient global financial sector that serves real economies across the world.
It would also be self-defeating because, if legitimate institutions cannot channel funds between countries through a well-regulated financial system, money will instead circumvent the official channels. That will make it easier for others to hide illegal activity, defeating even the narrow purpose of making our financial system more secure. We should not let that happen.
What needs to be done? We need to understand the scale of the problem and its causes. The Financial Stability Board, established after the G20 summit in London in 2009 to co-ordinate the monitoring of the global financial system, has asked the World Bank Group and others to garner more evidence on the extent and consequences of any retreat of correspondent banks.
Authorities must ensure that they provide a clear and consistent interpretation and enforcement of international standards. They should work with the financial industry to pursue technical measures, such as the global Legal Entity Identifier system, which standardises identification, and Know Your Customer platforms that help avoid duplicating due diligence work. Both solutions are already being implemented, but they need regulators’ support to reach the scale needed to achieve more reliable due diligence. The Financial Action Task Force and the World Bank are helping countries build better anti-money laundering systems. Assuring correspondent banks that their respondents are keeping undesirable funds out will not be easy, but it is essential that we find the right systems.
The financial abandonment of whole groups of customers — or even countries — is not something that can be ignored by the members of the G20. The FSB and the World Bank are playing our part in co-ordinating efforts to prevent the loss of basic banking services needed to finance investment in some of the most vulnerable areas in the world.
This is important not only for the countries directly affected, but for all of us as we seek to build a global financial system that can support growth for all.”
Full article
© FCA - Financial Conduct Authority
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article