By: David Lutz, CAMS, Senior Manager BSA/AML
On October 5, 2016, the Office of Comptroller of Currency (“OCC”) issued guidance relative to foreign financial institutions de-risking policies with respect to maintaining foreign correspondent banking relationships. The guidance comes after heavy scrutiny of the U.S. foreign correspondent banking sector, which provides cross-border commerce with many foreign financial institutions in jurisdictions with weakening AML and CFT provisions.
What is most prevalent in the guidance is that domestic institutions can no longer cut ties or terminate foreign bank accounts without a proper risk evaluation. The guidance states, “Account termination decisions should be based on the unique facts and circumstances of each bank and foreign financial institution, such as the level of risk that the bank’s systems and controls are designed to manage or mitigate, strength of the bank’s systems and controls, and specific foreign financial institution attributes, including the AML and supervisory regime of the jurisdiction that issued the charter or license to the foreign financial institution.”
The guidance emphasizes the concept of risk and risk evaluation. Similar to previous guidance on maintaining accounts with Non-Bank Financial Institutions (i.e., check cashers, money transmitters), there has been an onslaught of banks, both large and small, that have terminated relationships with foreign financial institutions without sufficiently documenting the rationale. The reasons may vary based on what may have occurred at the domestic institution (i.e., regulatory scrutiny, lack of resources to manage the risks posed, etc.). Nonetheless, flat-out terminating the relationship, as the guidance suggests, isn’t enough. More so, it implies that terminating the relationship without just cause can negatively impact that institution’s access to the U.S. banking system, which, in turn, could cause unrest for the home country.
We are a country at the forefront of providing and facilitating international commerce. In recent years, regulatory pressures may have warranted larger institutions to look upon their foreign counterparties and relationships in a negative way, thus removing them from the equation entirely. This sort of thinking goes against what the United States is all about. The guidance, as we’ve mentioned, now provides banks with guidelines to reevaluate the risk our relationships pose to our institutions (both initially and ongoing), best practices for retaining and terminating relationships, and more importantly, Senior Management’s involvement in those assessments.
For additional guidance, please refer to the following link, Risk Management Guidance on Foreign Correspondent Banking, from the OCC’s website.
Senior Manager - BSA/AML
David Lutz is an experienced Audit Supervisor at the Firm for the specialized area of BSA/AML Compliance reviews. He is a Certified Anti-Money Laundering Specialist.