AML KYC Tutorial | Role of Correspondent Banking

 

Role of Correspondent Banking

A financial institution that provides services on behalf of another, equal or unequal, the financial institution is known as a Correspondent Bank. A correspondent bank can conduct business transactions, accept deposits, and gather documents on behalf of the other financial institution. Correspondent banks are more likely to be used to conduct business in foreign countries and act as a domestic bank’s agent abroad.

Correspondent banks are used by domestic banks in order to service transactions originating in foreign countries and act as a domestic bank’s agent abroad. This is done because the domestic bank may have limited access to foreign financial markets, and cannot service its client accounts without opening up a branch in another country.

Services include,

• International wire transfers
• Cheques clearing
• Drawing arrangements for demand drafts and mail transfers
• Cash/fund transfers

Shell Bank

 A bank that is incorporated in a country where it has no physical presence and is not affiliated to any regulated financial group. Following information about the correspondent bank must be available,

• Major business activities.
• The bank’s management.
• The level of ‘Know Your Customer’ Anti-Money Laundering compliance.
• Purpose of opening the correspondent account.
• Identity of any third party entity that will use the correspondent banking service.
• The regulatory framework and environment in the correspondent’s country.
• Legislations in place to curb money laundering activities/terrorist financing and their enforcement.
• Ensure that correspondent bank has never been subjected to any serious money laundering or terrorist financing investigation or regulatory action.

Respondent Bank 

The respondent bank is a bank on whose behalf another bank (correspondent bank) acts in financial markets so that it may be able to provide necessary services to its account holders.

A bank may ask another bank, usually bigger, in a major city or different country to perform various financial transactions on its behalf which the bank itself is unable to perform due to limitations of financial, geographical, or feasibility in nature.

This module covers the following topics:

• Basics of Correspondent Banks
• Anti-Money Laundering Policies of the Correspondent Bank

 

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