An updated guideline for respondent banks has been released by BAFT in a bid to better equip them to maintain their correspondent banking relationships in a complex regulatory environment.
Via Global Trade Review (GTR) by Eleanor Wragg
BAFT (Bankers Association for Finance and Trade) has released an updated version of its guidelines for respondent banks in a bid to better equip them to maintain their correspondent banking relationships amid an increasingly complex regulatory environment.
The Respondents’ Playbook 2.0: A Correspondent Banking Relationship Guide serves as a roadmap for respondent banks on international anti-money laundering (AML) and combating the financing of terrorism (CFT) standards. It outlines the decision-making process of correspondents establishing new and reviewing existing relationships and the measures that respondents may take to increase the likelihood of a favorable outcome.
Correspondent banking relationships are crucial for the financing of global trade, as they enable banks that may not have a presence in certain countries to still facilitate transactions, such as issuing or confirming letters of credit, in those regions.
However, although both the volume and value of cross-border payments have surged in the last decade – the Bank of International Settlements estimates increases of 61% and 37%, respectively –the number of correspondent banking relationships has fallen by 29%.
This decline is largely due to a heightened focus by banks on regulatory, reputational and financial risks from AML and CFT. With compliance costs increasing, for many banks, the risk presented by a sprawling network of interbank relationships – particularly in emerging markets – is too great to bear.
The BAFT playbook, which reflects the expectations and recommendations of a majority of the 20 largest global correspondent banks, clarifies correspondent bank expectations and provides constructive guidance for respondents to reduce their perceived financial crime compliance risk.
The new document replaces BAFT’s first set of guidelines, published in 2019, and includes adjustments to bring the guidelines in line with current regulatory concerns and correspondent bank risk appetite.
The 2023 version also includes information on the migration to the new ISO 20022 standard for financial messaging which will boost bank screening and filtering capabilities via a single format for transactions across different systems, platforms and geographies.