On 13 July 2016, the Committee on Payments and Market Infrastructures (CPMI) issued the final version of its report on correspondent banking. The CPMI had consulted on a draft of the report in October 2015. The changes made to the final report, which are influenced by the public comments received and the interactions with stakeholders, are intended to strengthen the analysis and sharpen the message and recommendations of CPMI.
Correspondent banking is used by banks to access financial services in different jurisdictions and provide cross-border payment services to their customers. However, the report states that correspondent banking relationships recently seem to be under threat. The impact of correspondent banking trends is uneven across jurisdictions and banks, while according to a qualitative analysis using SWIFT transaction data, there seems to be a trend towards concentration in correspondent banking activities. Some of the main reasons for cutting back on correspondent banking relationships are the rising costs and the uncertainty regarding the appropriate extent of customer due diligence (CDD), including `know-your-customers' customers' (KYCC) obligation. The regulatory framework is assumed in the CPMI report, and the focus falls on measures that could improve the efficiency of procedures, reduce compliance costs and help address perceived uncertainty. The CPMI does not aim to alter the applicable rules and basic channels for correspondent banking services between correspondent and respondent banks.
The main CPMI recommendations are outlined below:
1. Use of "know your customer" (KYC) utilities
The CPMI recognises that KYC utilities by respondent and correspondent banking, provided they store at least a minimum set of up-to-date and accurate information, could be used as an effective means of reducing the burden of compliance with CDD requirements for banks engaging in the correspondent banking business. The CPMI therefore invites relevant standard setters, such as the International Organisation for Standardisation, to define a standardised minimum set of information and data (including the format) that all utilities should collect and that all banks have to be ready to provide to other banks when information and data are required. Moreover, the CPMI invites the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervisions AML/ CTF Group (AMLEG), which have responsibility for anti-money laundering and counter-terrorist financing, to develop a set of issues that financial institutions should consider when using KYC utilities.
2. Use of the Legal Entity Identifiers (LEI) in correspondent banking
All authorities and relevant stakeholders are invited to promote Business Identifier Code-to-LEI mapping facilities, in order to allow for an easy mapping of routing information available in the payment message to the relevant LEI. Moreover, relevant authorities are encouraged to further elaborate as to what extent the banks can rely on the LEI as a means of accessing reliable information to support customer due diligence in correspondent banking.
3. Information-sharing initiatives
The FATF and the AMLEG are invited to provide additional clarity on CDD recommendations for upstream banks and further explore ways to tackle obstacles to information-sharing in order to identify potential best practices. Following the FATF recommendation, the CPMI suggests that informationsharing mechanisms for KYCC could be promoted as the first source of information by default which, if needed, could be complemented bilaterally with enhanced information.
4. Payment messages
The CPMI recommends that individual banks decide which method should be used, i.e. serial Message Type (MT) 103 method and the cover MT 202 CV method, in compliance with Anti-Money Laundering/CounterTerrorist Financing and relevant regulatory requirements, when all data fields are accurately populated in a payment message. The CPMI invites the stakeholders to revisit their principles governing the use-cases for payment messages, and accordingly, review what information should be included and which data fields should be used. AMLEG is also invited to develop further guidance on the supervisors' roles in ensuring that banks meet FATF Recommendations and guidance on the quality of the payment message content.
5. Use of the LEI as additional information in payment services
The CPMI recommends that stakeholders start analysing how the LEI could be used on an optional basis and in a more structured way within the current relevant MT messages. It also suggests that stakeholders work on defining a common market practice in order to enable
the inclusion of the LEI in the current relevant payment messages without changing the current message structure. Relevant stakeholders are also encouraged to consider developing dedicated codes or data items for the inclusion of the LEI in these payment messages.
The CPMI recognises that the recommendations will not in isolation resolve all of the issues raised. However, they might address some of the costs and concerns connected to correspondent banking activities. According to the CPMI, the recommendations need to be further analysed by all relevant authorities and stakeholders, in order to evaluate the potential impact of each measure and avoid unintended consequences.
The CPMI welcomes the review or investigation of the recommendations by the relevant stakeholders. The CPMI also stated it would facilitate the implementation of payment systems from a technical perspective by contributing to the work or work streams of relevant stakeholders.