The Financial Stability Board (FSB) today published two reports as part of its work to assess and address the decline in correspondent banking relationships (1) a progress report on the FSB action plan to assess and address the decline in correspondent banking and (2) a stocktake on remittance service providers’ access to banking services, including recommendations to improve accessibility. These reports have been delivered to G20 Finance Ministers and Central Bank Governors. A short cover note to the G20 also published today, highlights main messages.
A decline in the number of correspondent banking relationships remains a source of concern for the international community because, in affected jurisdictions, it may impact the ability to send and receive international payments, or drive some payment flows underground, with potential adverse consequences on international trade, growth, financial inclusion, as well as the stability and integrity of the financial system. The reduction in correspondent banking relationships also has had a significant impact on remittance service providers’ ability to access banking services. The impact is particularly acute in those developing countries where remittances represent a significant percentage of Gross Domestic Product.
Alexander Karrer, Chair of the FSB’s Correspondent Banking Coordination Group and Deputy State Secretary at the Swiss Federal Department of Finance, said: “The FSB has made good progress in its coordinated work with other international bodies on correspondent banking and our stocktake sets out a clear set of recommendations to address problems faced by remittance service providers. While there are no “silver bullets”, the actions taken to date under the coordinated FSB action plan are intended to reverse the global decline. But, in order to do so, they will need to be followed up by national authorities and the banking and remittance industries.”
The progress report highlights actions taken to implement the FSB’s four-point action plan on correspondent banking since the FSB’s July 2017 update. These include:
In addition, work needs to continue to implement industry initiatives that follow up on CPMI recommendations, such as Know-Your-Customer utilities, the recently published option to include the Legal Entity Identifier in payment messages and the industry standards on the use of these messages.
This stocktake identifies a variety of intertwined drivers for the termination of banking services to remittance service providers’, including profitability, the perceived high risk of the remittance sector from an anti-money laundering/counter terrorism financing (AML/CFT) perspective, supervision of remittance service providers that ranges from active and effective to complete absence and, in some jurisdictions, weak compliance with international standards, particularly those relating to AML/CFT.
The report makes 19 recommendations in four areas to address gaps and remaining barriers to banking services by remittance service providers:
The FSB, FATF, Global Partnership for Financial Inclusion, IMF and World Bank will coordinate to monitor take-up of the recommendations and report back to the G20 in July 2019.
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