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    Correspondent Banking Faces Existential Crisis' Warns PWC: Elliott Holley

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    Bin Hassan
    Correspondent banking faces an "existential crisis" according to a report by PwC. Banks have been pulling out of correspondent banking relationships and closing accounts in poorer countries due to regulatory pressure and concerns over penalties for non-compliance with AML/CFT rules. This undermines the global financial system by reducing the ability to transfer funds across borders. The report suggests that banks invest in data analytics and automation to better manage risks and costs, and increase collaboration both within organizations between compliance and front offices, and between financial institutions, in order to make correspondent banking more viable.

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    Correspondent Banking Faces Existential Crisis' Warns PWC: Elliott Holley

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    Bin Hassan
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    Correspondent banking faces an "existential crisis" according to a report by PwC. Banks have been pulling out of correspondent banking relationships and closing accounts in poorer countries due to regulatory pressure and concerns over penalties for non-compliance with AML/CFT rules. This undermines the global financial system by reducing the ability to transfer funds across borders. The report suggests that banks invest in data analytics and automation to better manage risks and costs, and increase collaboration both within organizations between compliance and front offices, and between financial institutions, in order to make correspondent banking more viable.

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    Correspondent banking faces an "existential crisis" according to a report by PwC. Banks have been pulling out of correspondent banking relationships and closing accounts in poorer countries due to regulatory pressure and concerns over penalties for non-compliance with AML/CFT rules. This undermines the global financial system by reducing the ability to transfer funds across borders. The report suggests that banks invest in data analytics and automation to better manage risks and costs, and increase collaboration both within organizations between compliance and front offices, and between financial institutions, in order to make correspondent banking more viable.

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    66 views2 pages

    Correspondent Banking Faces Existential Crisis' Warns PWC: Elliott Holley

    Uploaded by

    Bin Hassan
    Correspondent banking faces an "existential crisis" according to a report by PwC. Banks have been pulling out of correspondent banking relationships and closing accounts in poorer countries due to regulatory pressure and concerns over penalties for non-compliance with AML/CFT rules. This undermines the global financial system by reducing the ability to transfer funds across borders. The report suggests that banks invest in data analytics and automation to better manage risks and costs, and increase collaboration both within organizations between compliance and front offices, and between financial institutions, in order to make correspondent banking more viable.

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    Correspondent banking faces existential crisis warns PwC

    20 November, 2015 Written by Elliott Holley

    Extracted from: http://www.bankingtech.com/404142/correspondent-banking-faces-existential-crisis-warns-pwc/

    De-risking, motivated by short-term risk-reward calculations, should not be allowed to kill off one
    of the cornerstones of the global financial system. Rather than abandon correspondent banking
    relationships, banks should be thinking about investing in and automating their risk controls,
    according to a new whitepaper by PwC.

    The rise of tough new financial regulation in the years since the financial crisis has seen pressure mount
    on the correspondent banking network. The international money transfer business has been particularly
    affected, especially in poorer countries such as Somalia. Many banks have pulled out, ending
    relationships and closing correspondent accounts. Barclays was at the centre of a Parliamentary
    debate over the issue in the UK House of Commons in 2013. The bank stated that it feared being fined by
    the regulator if it did not reduce what it perceived as exposure to risky businesses.

    The report, Correspondence course: charting a future for US-dollar clearing and correspondent banking
    through analytics, adds that financial institutions are facing significant penalties for failure to comply with
    AML and counter-terrorist financing rules. Apart from enforcement action, one component of the
    regulatory push is an increased scrutiny on correspondent accounts. PwC suggests that the banking
    industry faces an existential crisis for the financial services industry, since the closure of hundreds of
    thousands of accounts following AML reviews effectively undermines the global financial system by
    reducing its ability to transfer funds across border and support international trade.

    Possible solutions highlighted by PwC include increased use of data analytics, including automated entity
    consolidation, alert risk scoring and new model-based approaches to transaction monitoring. These are
    identified as ways to better manage risks and costs. But beyond pure technology, there is also a need for
    greater coordination between front office relationship managers and compliance officers. Increased
    collaboration within organisations can help financial institutions to become more selective in terms of their
    correspondent banking relationships, says the report. This is critical to the risk-based approach that
    regulators advocate.

    In addition, collaboration between financial institutions was highlighted as a means to make


    correspondent banking more viable, by making due diligence easier and streamlining compliance
    processes. Examples include Swifts KYC Registry, which targets an area that is non-competitive but
    which all financial institutions need to carry out essentially the same tasks.

    Caution is also advised. For example, rules-based transaction monitoring can produce a high level of
    false positives, so it may be better to adopt a system that incorporates more context provided by KYC or
    customer-level information. Visualisation tools can provide a clearer view of detection scenarios, allowing
    the number of false positives to be reduced.
    Other factors that can be explored are factors related to underlying transactions such as structuring or
    related to a group of transactions such as flows to or from high risk geographies. Investigation outcomes
    can also be incorporated into model development, helping to create statistical models that can predict the
    possibility that an alert will be escalated. The point is to prioritise, improving the efficiency of alerts and
    investigation.

    Together these techniques can create a smaller pool of alerts to investigate while still providing sufficient
    coverage of the alerts that have the highest likelihood of being truly suspicious, read the report.

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