World Council of Credit Unions Vice President and General Council Michael Edwards provided an update on the international credit union regulatory environment Monday at the CUNA/National Association for State Credit Union Supervisors Bank Secrecy Act Conference.
Edwards particularly emphasized a mistaken concept called “Know Your Customers’ Customers” (KYCC) that has resulted in many correspondent banks “de-risking” or ceasing to do business with certain categories of institutions.
The Financial Action Task Force (FATF) sets global anti-money laundering/countering the financing of terrorism (AML/CFT) policy and guidance.
Misinterpretation of a 2012 FATF recommendation has led to some prominent examples of banks closing credit unions’ correspondent accounts in Ohio and West Virginia, as well as in the United Kingdom and the Caribbean.
An October 2016 update from FATF clarified that it does not require financial institutions to conduct customer due diligence on the customers of their customer.
“Institutions need to have an approved BSA policy, but are not required to conduct due diligence on their customers’ customers,” Edwards said. “Instead, the correspondent institution will monitor the respondent institution’s transactions, focusing on changes to risk profile, implementation of risk mitigation measures, unusual activity or potential deviations from agreed-upon terms.”
This ongoing monitoring is required by correspondent banks regarding the the transactions they are processing, with an emphasis on “out of character” transactions.
Edwards also noted that wires and automated clearing house transactions are areas of interest for monitoring.
Edwards said going forward, he expects guidance could be forthcoming on: