Virtual Currencies May Fill the Gap Left by the Correspondent Banking Sector

The Chairman of the International Committee on Payments and Market Infrastructure (CPMI) has expressed his concern for the number of correspondent banking arrangements that are in sharp decline around the world, with active relationships having decreased by 20% in the last decade.

A correspondent bank is a bank that provides services on behalf of another financial institution. Correspondent banks are often used by domestic banks to service transactions that either originate or are completed in foreign countries, acting as a domestic bank's agent abroad.

A large share of cross-border transfers have conventionally been carried out through correspondent bank relationships, especially for families and small businesses in developing countries. However, increasing regulations of anti-money laundering legislation are raising concerns for the services future in the banking industry.

The penalties imposed for violations or non-compliance can be big: in April, the UK's FCA fined Standard Chartered Bank a little over GBP £102 million for 'serious and sustained shortcomings' in its AML (anti-money laundering) controls in its overseas banking sector.

Major international banks have the funding to respond accordingly; deploying de-risking strategies that deter such motives. The loss of such facilities in some countries by their increased cost, may push people in affected jurisdictions to start using alternative payment services such as e-currencies and wallets, according to an international banking ombudsman.

CPMI's analysis looked at data provided by the SWIFT international payments system and is based on payment data from over 200 countries. The findings show that the decline is global, however is more pronounced in some continents than others. In 2018, there was a global decline in active correspondent banking relationships of 2.2%.

By continent, North America has seen a decline of their active correspondent banking relationships of only 10%, whereas smaller economies such as the Caribbean and Latin America have experienced declines by 30% since 2012.

In 2016, the former Bahamas Minister of Financial Services, stated that Caribbean nations were being severely harmed by the withdrawal of correspondent banking services in the region as part of international de-risking efforts.

Although most countries had over 100 active correspondent banking relationships in 2018, there were 15 jurisdictions with fewer than 20 relationships. Most of who makes up this figure are small-island territories, with an average population below 150,000, the CPMI commented.


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