Factors to consider when conducting initial and ongoing due diligence assessments

You must consider the factors listed below in your due diligence assessment before entering and during the life of your correspondent banking relationship.

The assessment must be based on information reasonably available when assessing the ML/TF and other serious crime risks.

Ownership, control and management structures

The ownership, control and management structures of the respondent and those of its ultimate parent (if any), including:

• if publicly owned, whether its shares are traded on a recognised market or exchange in a jurisdiction with a satisfactory regulatory regime, or, if privately owned, the identity of any beneficial owners and controllers
• location, structure and experience of the board of directors and executive management including whether any of these key personnel are identified as politically exposed persons (PEPs)
• any relevant information from the respondent’s website and latest annual return.

Nature of the business

The nature, size and complexity of the respondent’s business, including:

• its products, services, delivery types and customer types
• the types of transactions carried out on behalf of underlying customers as part of the correspondent banking relationship and the services provided to underlying customers that relate to such transactions.

The type of business the respondent engages in and the type of markets it serves, will be indicative of the risk the respondent presents.

Foreign countries

The foreign countries in which the respondent operates or resides, including:

• whether the ultimate parent company of the respondent has group-wide AML/CTF systems and controls, and whether the respondent operates within the requirements of those controls
• the existence and quality of any AML/CTF laws, regulations and supervision in any foreign countries in which the respondent and the parent resides, and the respondent’s compliance practices in relation to those laws and regulations
  • for example, consider the quality of supervision by the primary regulatory body responsible for overseeing or supervising the respondent. If circumstances warrant, you should also consider publicly available materials to ascertain whether the respondent has been the subject of any criminal case or adverse regulatory action in the recent past.
• establish whether the respondent is regulated for AML/CTF and, if so, whether the respondent is required to verify the identity of its customers and apply other AML/CTF controls to FATF or equivalent standards
• if you are undertaking due diligence on a branch, subsidiary or affiliate, consideration may be given to the parent having robust group-wide controls, and whether the parent is regulated for AML/CTF to FATF or equivalent standards.

AML/CTF regulations and supervision

You should assess the adequacy and effectiveness of the respondent’s AML/CTF controls and compliance practices in relation to AML/CTF regulations and supervision.

You may also wish to use established industry questionnaires (for example, the Wolfsberg Correspondent Banking Due Diligence Questionnaire) or similar tools to meet this requirement. Additionally, you may also wish to speak with representatives of the respondent to reassure yourself that senior management recognise the importance of AML/CTF controls.

Company reputation

Publicly available information relating to the reputation of the respondent and any related company concerning its compliance history. This includes whether the respondent has been the subject of an investigation, adverse regulatory action in relation to implementation of AML/CTF or sanctions obligations, or criminal or civil proceedings relating to money laundering, terrorism financing or other serious crimes.

Vostro account information

If you provide a vostro account that can be directly accessed by the customers of the respondent (that is, payable through accounts), you must assess whether the respondent:

• verifies their customer’s identity and subjects them to ongoing customer due diligence
• is able to provide documents, data or other information relating to the verification and ongoing customer due diligence on request.

Note: If the respondent is unable to provide this data and documentation, then you must not provide a payable-through-account.

Senior officer approval

A senior officer of your financial institution must approve you entering into a correspondent banking relationship.

For the purposes of correspondent banking relationships, a senior officer does not have to be a person in executive management. The financial institution can determine who is a senior officer, depending on the size and complexity of the organisation.

The senior officer should have sufficient knowledge of your ML/TF and serious crime risk exposure, and have sufficient authority to make decisions affecting your risk exposure.

Written record of the correspondent banking relationship

Within 20 business days after the day of entering into a correspondent banking relationship that involves a vostro account, you must prepare a written record of the arrangement and include details of the responsibilities of each party to the correspondent banking relationship. For example, in the documentation establishing the correspondent banking relationship.

Ongoing due diligence assessments of correspondent banking relationships

Your ongoing due diligence assessments should address the factors outlined above and set out in Chapter 3 of the AML/CTF Rules. Additionally, you must also consider and address any material changes to those risks (for example, changes in the respondent bank’s business model) or to your business relationship with the respondent, including the types of transactions carried out as part of the relationship.

You should be satisfied that the respondent continues to have in place and maintain appropriate risk-based systems and controls to mitigate and manage ML/TF and serious crime risks.

Other factors to consider include, but are not limited to:

• changes in behaviour or activity, for example, sudden or significant changes in transaction activity by value or volume, or unusual transactions
  • you should conduct transaction monitoring on the respondent institution and the associated underlying transactions
• significant increases of activity or consistently high levels of activity with higher risk geographic jurisdictions or entities
• activity that may, in the absence of other explanation, indicate possible money laundering, such as the structuring of transactions under reporting thresholds
• material changes in ownership or management structure
• re-classification of the jurisdiction where the respondent institution is located
• identification of relationships with politically exposed persons (PEPs), either as customers or through involvement in the ownership and control structures
• adverse media coverage of the respondent institution.

Frequency of assessments of correspondent banking relationships

Ongoing due diligence assessments of your correspondent banking relationships must be undertaken at least every two years.

If your respondent has been subject to an investigation or regulatory action, which leads to a material change in the ML/TF or serious crime risk, or there has been any other material change that impacts on the relationship, then these are a trigger event to conduct a due diligence assessment and review of the correspondent banking relationship.

See Chapter 3 of the AML/CTF Rules.

• Your policies, controls and procedures relating to your correspondent banking relationship should be reviewed and updated at regular intervals.

Recording your assessments of the correspondent banking relationship

You must prepare a written record on completion of each ongoing due diligence assessment of your correspondent banking relationships within 10 business days.

Due diligence assessments and the provision of a vostro account

The requirement to conduct due diligence assessments under Part 8 of the AML/CTF Act is triggered by the provision of a vostro account. The due diligence assessment is focused on ensuring that you understand the ownership and control of the respondent institution, the AML/CTF context in which it operates, and the effectiveness of its AML/CTF systems and controls.

Correspondent banking due diligence complements, and is in addition to, other AML/CTF obligations such as customer due diligence undertaken when the correspondent provides designated services to the respondent as its customer.

For example, opening a vostro account involves the provision of a designated service under Item 1 of Table 1 in subsection 6(2) of the AML/CTF Act (e.g. opening an account as an ADI). The provision of other services under a correspondent banking relationship may constitute other designated services. For these services you must carry out the applicable customer identification procedure in respect of the respondent and its beneficial owners, if any.

However, under Chapter 35 of the AML/CTF Rules, a correspondent is exempt from carrying out the applicable customer identification procedure in respect of signatories to a vostro account where those signatories are employees of the respondent.

The correspondent must also comply with other AML/CTF obligations including transaction monitoring and other ongoing customer due diligence measures, and submit suspicious matter reports when required.

Additional resources

The following international organisations publish material which may assist in the formation of due diligence processes for correspondent banking relationships.

• Wolfsberg Banking Anti Money Laundering Correspondent Banking Principles
• Wolfsberg Correspondent Banking Due Diligence Questionnaire
• The Wolfsberg Group FAQs on Correspondent Banking
• Financial Action Task Force (FATF) including Mutual Evaluation Reports, guidance and other key publications such as high risk and monitored jurisdictions.
• The Egmont Group
• Organisation for Economic Co-operation and Development (OECD)
• The World Bank
• International Monetary Fund (IMF)
• Bank Secrecy Act/Anti-Money Laundering Examination Manual
• Joint Money Laundering Steering Group (JMLSG) Guidance Notes
• The New York Clearing House Association L.L.C. Guidelines for Counter Money Laundering Policies and Procedures in Correspondent Banking