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BIS - 5 recommendations to ease correspondent banking costs/concerns = revolution

BIS’s Committee on Payments and Market Infrastructures has issued a report on what to do about correspondent banking. CPMI make five recommendations, to help alleviate some of the costs and concerns affecting correspondent banking activities, on:

  1. the use of “know your customer” (KYC) utilities:
    • they plan to invite the relevant standard setters such as the International Organization for Standardization (ISO) to consider defining a standardised minimum set of information and data (including the format) that all utilities should collect and that all banks have to be ready to provide to other banks which require the information and data
    • in addition to standardising the data and formats, it would be necessary that banks have some assurances from relevant authorities (such as the regulatory, supervisory or law-enforcement authorities) with respect to the appropriateness of and reliance upon any such utility for the purposes of AML/CFT compliance
    • the authorities with responsibility for AML/CFT (ie the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision AML/CFT Expert Group (AMLEG)) are invited to consider developing a set of issues that financial institutions should consider when using KYC utilities, to support an appropriate use of these utilities
  2. the use of the Legal Entity Identifier (LEI) in correspondent banking:
    • All authorities and relevant stakeholders are invited to consider promoting BIC-to-LEI mapping facilities, which allow for an easy mapping of routing information available in the payment message to the relevant LEI.
    • relevant authorities (eg the LEI Regulatory Oversight Committee (LEI ROC) and AMLEG) are encouraged to elaborate further as to what extent banks can rely on the LEI as a means of accessing reliable information to support customer due diligence in correspondent banking.
  3. information-sharing initiatives:
    • the FATF and AMLEG are invited to further explore ways to tackle obstacles to information-sharing, with the aim of identifying potential best practices (in the enterprise-wide context, among financial institutions not part of the same financial group, and between the public and the private sector).
  4. payment messages: the committee found that both methods (ie the serial MT 103 method and the cover MT 202 COV method) can be used in full compliance with AML/CFT as well as relevant regulatory requirements when all data fields are accurately populated in a payment message, so recommended that:
    • the decision to individual banks as to which method should be used
    • the relevant stakeholders (ie the Wolfsberg Group and the Payments Market Practice Group (PMPG)) to review their principles governing the use-cases for payment messages, what information should be included and which data fields should be used
    • the AMLEG is invited to consider developing further guidance on supervisors’ role in ensuring that banks meet FATF Recommendations and guidance on the quality of payment message content.
  5. use of the LEI as additional information in payment messages:
    • relevant stakeholders could start analysing how the LEI might be used on an optional basis in a more structured way within the current relevant MT messages (ie MT 103 and MT 202 COV). Therefore, relevant stakeholders (eg the PMPG) should work to define a common market practice for how to include the LEI in the current relevant payment messages without changing the current message structure
    • as part of a potential future migration to message formats based on the ISO 20022 standard, relevant stakeholders (ie ISO and SWIFT) are encouraged to consider developing dedicated codes or data items for the inclusion of the LEI in these payment messages

As you would expect, the CPMI is cautious saying that it believes that, “its recommendations might alleviate some of the costs and concerns connected with correspondent banking activities.” It recommends that, “these measures should be further analysed by all relevant authorities and stakeholders in order to gauge the potential impact of each measure and to avoid unintended consequences. The CPMI expects that the relevant stakeholders will initiate any necessary reviews or investigations in the light of the five recommendations as soon as possible.”

CTMfile take: If banks world-wide can agree, “a standardised minimum set of information and data (including the format) that all utilities should collect and that all banks have to be ready to provide to other banks which require the information and data”, it will be a revolution. Corporates need to encourage their banks to adopt and implement all five recommendations.

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