The Wolfsberg Group Publishes Updated Financial Crime Principles for Correspondent Banking

On October 28, the Wolfsberg Group issued updated guidelines and best practices for financial institutions (FIs) involved in correspondent banking. The guidance replaces the Group’s 2014 edition and widens its scope to address entities other than banks, such as non-bank financial institutions (NBFIs) and payment service providers (PSPs), that may also have correspondent relationships. 

According to the Financial Action Task Force (FATF), “correspondent banking is essential in the global payment system and vital to international trade and the global economy as a whole.” Owing to the crucial role of correspondent banking worldwide, the Wolfsberg Group aims to provide guidance for FIs to prevent these global networks from being used for criminal purposes.

Updated Correspondent Banking Principles

The updated principles promote effective risk management and enable FIs to exercise sound business judgment regarding their correspondent banking customers. Throughout the report, the Wolfsberg Group advocates FIs adopt a risk-based approach to each principle – allocating their resources and level of response according to the level of risk presented. 

Applicable to all correspondent banking relationships that an FI establishes or maintains for a respondent, the Wolfsberg Group’s principles include:

• Defining policies and procedures that require specified personnel to be responsible for ensuring compliance with all correspondent banking activity
• Identifying and defining an acceptable risk appetite that has been approved by the Board or other similar senior stakeholders
• Undertaking appropriate due diligence, assessing factors such as geographic location, ownership and management structures, and the quality of the respondent’s financial crime controls (FCC) program
• Applying enhanced due diligence (EDD) to respondents that pose more significant risks, such as politically exposed persons (PEPs)
• Implementing procedures to detect, investigate, and report unusual or suspicious activity
• Reviewing relationships with the respondents on an ongoing basis

Correspondent Banking Due Diligence Questions

In April 2020, the Wolfsberg Group also released a revised version of the correspondent banking due diligence questionnaire (CBDDQ). Designed to provide a reasonable and enhanced view of a FI’s FCC policies and practices, the CBDDQ should be used to fulfill due diligence requirements when working with cross-border and/or higher-risk respondents.

More recently, in August 2022, the Group also issued best practice guidance on requests for information (RFI). Following the completion of the CBDDQ, the RFI process allows the correspondent to see how the respondent’s anti-money laundering (AML) and know-your-customer (KYC) programs work in practice, allowing the respondent to demonstrate how elements of its program functions. 

According to the Wolfsberg Group, correspondent banks should issue an RFI if:

• Concerns arise around transaction monitoring and/or AML and combatting the financing of terrorism (CFT) measures
• Financial Intelligence Units (FIUs) need to review projects
• Account activity requires a review due to unusual or suspicious activity

Key Takeaways 

FIs involved in correspondent banking activity should ensure they understand who they are dealing with. While accessing the details of every customer of the respondent bank may not be possible, correspondent banks should take the necessary steps to clearly understand the relationship they are continuing or entering into.

FIs may also consider reviewing their current correspondent banking policies and procedures in light of the Wolfsburg Group’s updated principles. The report’s FAQ section should also be read to uncover more information on whether correspondent banking services should treat its branches, subsidiaries, and affiliates as distinct customers subject to the principles.