Recent guidance from the Financial Action Task Force (FATF) will likely make it easier for credit unions to establish and maintain correspondent banking relationships. The Paris, France-based FATF sets international standards on anti-money laundering and countering the financing of terrorism rules, and its members include the U.S. Treasury Department.
The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) will likely issue guidance based on the FATF standard in the next few months.
The guidance covers anti-money laundering countering the financing of terrorism (AML/CFT) rules in correspondent. It is good news for credit unions since it clarifies AML/CFT responsibilities of both correspondent and respondent financial institutions engaged in correspondent banking.
The guidance should therefore help reduce the phenomenon of correspondent banks “de-risking” their client bases by ceasing to do business with other financial institutions such as natural person credit unions.
The FATF guidance defines “de-risking” as “situations where financial institutions terminate or restrict business relationships with entire countries or classes of customer in order to avoid, rather than manage,” the compliance, enforcement and reputational risks associated with correspondent banking.
The World Council first asked the FATF for clearer guidance on correspondent banking responsibilities 3 years ago because of credit unions’ concerns about de-risking in the United States, Europe and the Caribbean. Over that time World Council has repeatedly brought concerns to the FATF regarding “de-risking” at FATF consultative meetings and also filed three comment letters on correspondent banking AML/CFT issues with the FATF in the past 12 months.
The guidance responds to World Council’s comments by: