A report released this week by the Financial Stability Board, an international body that makes recommendations on the financial system for G20 nations, has raised concerns over the ongoing decline in interbank relationships.
Reports Wednesday (July 5) said the FSB released the results of a survey that found banks across the globe are reducing the number of correspondent banking relationships, used for cross-border payments, as they grow increasingly concerned about falling out of compliance with anti-money-laundering and other regulations.
Researchers found that the number of these relationships declined by 6 percent between 2011 and 2016; the number of interbank relationships involving U.S. dollar and euro transactions declined even further, by 15 percent. According to the FSB, this decline is ongoing, and the trend may have “potential adverse consequences on international trade, growth, financial inclusion, as well as the stability and integrity of the financial system,” the report stated.
Banks are facing what Reuters described as “massive fines” for AML rule breaches as regulators aim to fight back against financing to terrorists and other illicit and illegal activity that relies on the global transfer of funds. Reports said the banks are especially looking to cut relationships with other FIs across Africa, Latin America and the Caribbean.
Reports said unnamed senior bankers are explaining that this trend is the result of banks concerned with getting hit with these fines, deciding to cut ties with other banks that have the potential to expose them to non-compliance risks.
This isn’t the first time the FSB has raised concerns over the decline in correspondent banking relationships. According to reports, two years ago the body initiated efforts to address the decline, and while it said it has so far made progress, the report makes clear more work must be done. The FSB is advising regulators across the globe to clarify their banking and risk management rules for FIs.