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Managing correspondent banking ML/TF risks: Recent regulatory developments on the risk-based approach model
Journal of Financial Compliance,
1
(3),
255-266
(2017)
Abstract
This paper provides background and describes the current regulatory views of a sound risk-based approach as well as the specific risk factors, controls and other process tools that need to be accounted for when employing such an approach. Since 2010, regulations globally have focused on defining the risk-based approach as a strategy and have determined appropriate elements to consider while carrying it out. Gathering information from independent reliable sources; assessing relevant risk factors of their customers; taking tailored action based on the level of risk and documenting the rationale for such measures are some of the elements adopted by international laws, regulations and guidelines as representative of a risk-based approach. The fact that enforcement activities have increased, penalties are reaching higher levels and are more widely publicised, has inclined financial institutions to move towards de-risking or implementing inefficient know your customer’s customers (FYCC) programmes for all their correspondent banking relationships. These are not the only means to manage risk for correspondent banking relationships. Other efficient controls have been suggested by the Basel Guidelines, such as knowing the anti-money laundering (AML)/counter terrorist financing (CTF) policies of a customer, adapting their product offering, tailored monitoring to the risk of the respondent bank and where required, taking into account red flags resulting from external information and from self-developed customer intelligence. This paper shows how all measures, processes and assessment of risk factors, together with adequate de-risking and KYCC controls, contribute to a strong management of money laundering (ML) or terrorist financing (TF) risks in correspondent banking activities.
Keywords: risk-based approach; derisking; anti-money laundering (AML)/ counter terrorist financing (CTF) programme; Basel Guidelines; risk factors; red flags; monitoring
The full article is available to subscribers to the journal.
Author's Biography
Jan-Gerrit Iken is currently the Global Head of Financial Crime, anti-money laundering (AML) and Sanctions for Commerzbank, one of the largest credit institutions in Europe, where he is responsible for the oversight of Commerzbank’s worldwide financial crime prevention programme. Before joining Commerzbank, Dr Iken was the Head of Compliance and AML for Sberbank Europe and Chief Compliance Officer for Hypo Alpe Adria International AG during the period of its reprivatisation. Dr Iken has held various compliance, regulatory and legal management roles in his previous 12 years with Allianz Global Investors, State Street Global Advisors and Cominvest Asset Management. Dr Iken holds a PhD from the University of Zurich and a Master of International Business Law from the University of St Gallen.
Alejandro Agudelo is an attorney at law (abogado), LLM Virginia, has a background that includes more than 11 years’ experience in the international banking and finance sector, global anti-money laundering (AML) standards, global regulatory requirements and independent AML reviews. Currently, Alejandro serves as VP at the Global Standards, Anti-Money Laundering Department at Commerzbank AG. Alejandro is responsible for several aspects of Commerzbank’s AML/ counter terrorist financing (CTF) policy framework including the rollout of the recent amendments to the global AML/CTF and know your customer (KYC) policies, and assisting the business segments in the execution of the newly implemented global standards. Prior to his current position, he held the role of Senior Legal Counsel at HSBC Holdings plc. During this time, he was responsible for coordinating and providing advice during global AML/sanctions reviews across the world by regulators, independent corporate compliance monitors or skilled persons.
