Artificial Intelligence & Correspondent Banking: De-Risking Doesn't Need to Mean Goodbye

On the one hand, it has long been a key mechanism for integrating developing countries into the global financial system and giving them access to the capital they need. On the other hand, correspondent banking relationships are inherently risky for the global banks that grant access to the respondent bank's customers without being able to directly conduct Know Your Customer/Customer Due Diligence (KYC/CDD) checks on them. It's not a small problem: make access too easy and you risk allowing billions of illicit funds through your door; cut off the relationships and you starve emerging markets of capital and drive their transactions into the shadows. To its credit, the Financial Action Task Force (FATF) understands the dilemma and has provided continued guidance to clarify the issue. In its October 2016 Guidance on Correspondent Banking Relationships, it explicitly stated that its standards "do not require financial institutions to conduct customer due diligence on the customers of their customer (i.e., each individual customer)". Rather, they require the correspondent bank to conduct sufficient due diligence on the respondent bank's processes to understand the risk they present and whether the risk is acceptable within their risk management framework.