1. Headings

2. Example Question:
You are working for a global financial institution, in your view, what are the few key expectations from clients in a correspondent banking relationship;

3. Answer:
Correspondent bank relationship is one of the strongest and at the same time vulnerable relationship between two banks.
Strongest in the sense that correspondents allow their client’s clients transactions to flow through their accounts and that is why correspondent banks conduct enhanced level of diligence on their client’s AML program.
This relationship is also vulnerable because clients must at all times ensure that their accounts activity must be in line with intended purpose. For example, a correspondent Bank-A providing services to Bank-B one day identifies that Bank-B is actually using its account for other banks. Or lots of blocked transactions in a given period apparently showing that client’s own screening controls are weak.
The correspondent bank is, in other words, dependent on the respondent bank (its client) to provide “insulation” against the AML/CTF/Sanctions risks by application of its own AML Program – focusing on its own client base, understanding the risks that client base presents, and ensuring that the AML Program is sufficient to mitigate those risks to the satisfaction not just of a local regulator but also of the correspondent bank (which may have a stricter regulator).

4. Answer:
Client’s AML program should exhibit a progressive trajectory in order to achieve this, as regulatory expectations are increasing all the time. That means banks should ensure that not only their AML program is sufficiently strong and resourced to counter the risks undertaken but they are aware of the gap to international best practice, ensuring the AML Program is constantly looking for improvement and not standing still.
1st and 2nd line functions in banks globally are transforming. Clients should exhibit that their 1st line takes true responsibility for the risks its business presents and becomes less reliant on 2nd line for their risk & control awareness. Also 2nd line should be transformed from a back office advisory function to a more inclusive risk management function. The earlier the 2nd line is involved in business change discussions, for example, the more efficient can be the planning and project management to ensure that any new business comes with built in compliance controls which can be demonstrated from the outset.