Fine-Tuning the Correspondent and Respondent Banking ...

1 Fine-Tuning the Correspondent and Respondent Banking Relationship10thDecember 2013 | 2013 | :Guy Sheppard, Associate Director, Financial Counterparty KYC Solutions, AccuityPresenters:Pattison Boleigha, CAMS, Head, Group Compliance & Internal Control,Access Bank PlcAndre Wentzel, CAMS, Head: Anti Money Laundering,Standard Bank GroupKevin West, Head of Financial Crime: Africa,Barclays Africa GroupFine-Tuning the Correspondent and Respondent Banking relationship Respondent Banking relationship Wednesday, 11 December 2013 | - Speaker:Pattison Boleigha, Head Group Compliance & Internal Control, Access Bank PlcOutline New Business Origination And Strategy Customer Take On Practices Money-laundering Risks In Correspondent Banking Risk Assessment Of Respondent Banks33rdAnnual AML & Financial Crime Conference,Africa Risk Assessment Of Respondent Banks On Going Monitoring Of Transactions Conclusion AcknowledgementNew Business Origination And Strategy/1 Ensure there are proper money-laundering risk assessments in place to address risk 43rdAnnual AML & Financial Crime Conference.

2 Africarisk assessments in place to address risk associated specifically with Correspondent Banking relationships Documented procedures in place to manage such relationships. Provision of Banking services to customers of their foreign parent bank s group who want to make overseas payments. Traditional Trade Finance Business Locations Expanding and developing the services Reasons For Correspondent Bank Relationships53rdAnnual AML & Financial Crime Conference,Africa Expanding and developing the services offered to existing customers. Cross-selling its product range to acquired customers.

3 Better developed framework and reduced risks of money laundering. Clear responsibility for the CDD process EDD for respondents that present greater risks Gathering information to understand client details Ownership and management; Products and offerings; Transaction volumes and values; Client market segments; Customer Take-on Good Practices/163rdAnnual AML & Financial Crime Conference,Africa Client market segments; Client reputation; AML control environment. Screening the names of senior managers, owners and controllers to identify PEPs and assessing the risk that identified PEPs pose.

4 Independent quality assurance bank wide CDD Discussing with overseas regulators Identifying risk in particular business areas Visit to discuss AML issues and gather CDD information. Sanctions screening, identifying and managing PEPs Monitoring account activity and reporting suspicious Customer Take-on Good Practices/273rdAnnual AML & Financial Crime Conference,Africa Monitoring account activity and reporting suspicious activity. Managing their own Correspondent Banking relationships. Senior management/senior Involvement Speed and Accuracy Absence of direct relationship to verify their identities.

5 What makes Correspondent Banking Risky? 83rdAnnual AML & Financial Crime Conference,Africa Limited information on nature or purpose of transactions Complexity of the entities involved Apply enhanced customer due diligence measures on a risk-sensitive to AML & Financial Crime Conference,Africa Implement appropriate controls for accepting Correspondent Banking relationships and ensure regular reviews Use a risk-based approach to target banks and activities that present the greatest risks such as: Location of the Respondent and/or where its parent is based.

6 Availability of Public information Financial Action Task Force (FATF) countries pose lower risk Publicly available and ideally objective; verifiable; recently published; and where possible, international in scope may be useful in Risk Assessment Of Respondent Banks103rdAnnual AML & Financial Crime Conference,Africaand where possible, international in scope may be useful in assessing the risk posed by a Respondent Information sources include: national government bodies non-governmental organisations, Transparency International CPI and FATF mutual evaluationsGood Risk Management Practices Regular assessments of Correspondent bank risks considering; Country (and its AML regime).

7 Ownership/management structure (including the possible impact/influence that ultimate beneficial owners with political connections may have); Licensing and appropriate documentation Products/operations; Transaction volumes; 113rdAnnual AML & Financial Crime Conference,Africa Transaction volumes; Market segments; The quality of the Respondent s AML systems and controls Adverse publicly available information from national government bodies and non-governmental organisations and other credible sources about the Respondent Robust Monitoring of high risk respondents Risk scores that drive the frequency of Risk Management PracticesInadequate or no policies and proceduresFailing to consider the money-laundering risksApplying a one size fits all approach to due 123rdAnnual AML & Financial Crime Conference.

8 Africalaundering risksprioritize higher risk customers and transactions for reviewHigh-risk business types .size fits all approach to due diligence Relying on parent banks to carry out monitoring of respondents without understanding what monitoring has been done or what the monitoring Monitoring Of Respondent Accounts - Poor Practices133rdAnnual AML & Financial Crime Conference,Africa Failing to take action when respondents do not provide satisfactory answers to reasonable questions regarding activity on their account. Carrying out ad-hoc reviews in light of material changes to the risk profile of a customer Review periods driven by the risk rating of a particular relationship ; with review high risk relationships more frequently Where appropriate, using intelligence reports to help decide Ongoing Monitoring Of Respondent Accounts Good Practices 143rdAnnual AML & Financial Crime Conference,Africa Where appropriate, using intelligence reports to help decide whether to maintain or exit a relationship .

9 Obtaining an updated picture for the purpose of the account and expected activity. Updating screening of respondents and connected individuals to identify individuals/entities with PEP connections or on relevant sanctions listsFine-Tuning: The Experience In the this approach had led to a reduction in the number of Correspondent accounts in the past few years One major bank had undertaken a major review of Correspondent relationships and SWIFT keys post 9/11. About500 of 2,500 were closed down in the ; 153rdAnnual AML & Financial Crime Conference,Africa About500 of 2,500 were closed down in the ; 400 on economic grounds; and the remaining 100 for AML reasons.

10 Key considerations in establishing and maintaining Correspondent accounts were: Profitability of an account net of compliance costs Reputational/franchise issues Conclusion Correspondence Banking isHigh Risk activity. Respondents will need to be put under enhanced monitoring to identify suspicious behaviors that may need to be addressed in good time. A risk based approach should be applied in managing correspondence Banking Money Laundering risks163rdAnnual AML & Financial Crime Conference,Africacorrespondence Banking Money Laundering risks Conscious efforts must be made to determine early enough decisions to exit Respondent relationships beyond just commercial Banks management of high money laundering risk situations How banks deal with high-risk customers (including PEPs)