WASHINGTON, November 20, 2015 - Two World Bank surveys confirm that large global banks are restricting or terminating relationships with other financial institutions and that banking services for money-transfer operators have become increasingly limited.
The surveys, carried out from April to October 2015, sought to gauge whether large banks are limiting or terminating foreign correspondent banking relationships and closing accounts belonging to money transfer operators.
In particular, they aimed to ascertain whether decisions being taken by banks were for business or risk-management reasons or as a result of “de-risking.” The Financial Action Task Force (FATF) defines de-risking as the “phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk in line with the FATF’s risk-based approach.”
The findings show that access to financial services for local and regional banks and remittance providers is contracting in some countries and regions and that business lines such as check clearing, international money transfers, and trade finance are being affected. The research confirms that these restrictions are largely driven by commercial decisions as well as legitimate concerns about money laundering and terrorism financing risks. However, some banks appear to be cutting off business relationships with entire classes of customers based on the country or type of financial service – rather than implementing a risk-based approach.
“Now that we have evidence that large banks are reducing services to correspondent banks and remittance providers, the private and public sectors need to come together to find practical and fact-based solutions. There is a real risk that turning away customers could actually reduce transparency in the system by forcing transactions through unregulated channels.” said Gloria Grandolini, Senior Director of Finance and Markets Global Practice at the World Bank Group.
Correspondent banking relationships are essential for companies and individuals to do business and make payments across borders. The loss of correspondent banking services can lead to financial exclusion, particularly where it affects remittance providers. The reports calls for policy setters, regulators, and banks to continue monitoring the environment, to clarify regulatory expectations, and to respond to misperceptions that may be resulting in excessively risk-averse behavior.
“Making banking services accessible, transparent and affordable is essential to achieving the goals of promoting financial integrity and Universal Financial Access by 2020, which means that basic and legitimate access to the formal financial system should be possible for everyone,” added Grandolini.
The reports are available at www.worldbank.org/financialmarketintegrity