In recent years, many banks have reduced their correspondent banking relationships in a trend known as ‘de-risking’. Panellists at Sibos 2016 explored the implications of de-risking, possible solutions – and whether it is still possible to bank low-risk clients in high-risk jurisdictions in the current climate.
An eclectic panel of experts outlined factors driving de-risking activities. Banks face a much higher regulatory burden than previously, with tax issues, AML requirements and international sanctions all contributing to the cost and effort of compliance. Recent fines may also have prompted some banks to rethink continued operations in certain markets.
However, not all decisions to exit relationships are entirely risk-driven. The panellists noted that concerns about profit margins also contribute to the trend. In a low interest rate environment, correspondent banking is a lower margin business. Some banks may see the current climate as an “opportunity to get out of a loss leader,” one expert noted.
While panellists asserted the right of banks to decide who they do business with, they noted that the downside of de-risking should not be minimised. Individuals, countries and regions face the risk of financial exclusion. And, monetary flows may be squeezed outside of the global financial system, decreasing transparency and making it even more difficult to detect and prevent financial crime.
What banks can do
Evolving sanctions regimes and a levelling-off of de-risking activities in some markets presents banks with a dilemma: whether to ‘re-risk’ by (re)banking trustworthy counterparts in high-risk markets.
Panellists put forward several approaches for banks to consider when banking low-risk clients in high-risk jurisdictions.
Download the paper ‘Banking low-risk clients in high-risk jurisdictions’ to learn more, and join us in Toronto in October to continue the discussion.