One of the major challenges faced by financial institutions with extensive correspondent banking relationships is managing the financial crime risks they are exposed to through their networks.
Among the approaches used by banks to manage these risks is ‘de-risking’: terminating or restricting their business relationships with categories of clients and in some cases whole markets. De-risking can severely affect access to financial markets and has a wide range of societal costs such as the impact on remittances.
Paradoxically, de-risking often simply reallocates risks to less transparent channels, be they overburdened local banks or the informal market.
This case study shows how the quantification of financial crime risk allows for a more nuanced and productive approach to the management of correspondent banking relationships.
Bank A operates in Eastern and Central Europe, providing smaller banks in the region with services including access to currency from European and American clearance markets. Bank A’s correspondent banking activity links various regions with different legal standards and regulatory frameworks, some of which are considered high risk.
Commercial relations with US institutions supplying Bank A with US dollars were positive, however, Bank A’s upstream banks perceived Bank A’s markets as being of high risk.
Bank A’s approach to due diligence and sanctions screening processes was manual, which was not producing satisfactory results, in addition to being labour intensive and largely subjective. When combined with rapidly changing regulatory details and restrictions (EU AML directives, evolving sanction regimes), and the increasing risk of enforcement and fines by key regulatory bodies across the industry, the result was that Bank A was under pressure to improve its compliance framework.
Solution: Regular quantification of financial crime risk via the Elucidate Financial Crime Index (EFI)
Download our case study to find out how we improved the risk management system that not only aligned its internal business functions but also incurred no additional workload or costs to its respondent partners.
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The EFI allows banks to score their financial crime risk against a standard benchmark. It draws on the bank’s own data, and complements them with publicly available sources, and Elucidate’s proprietary data. On a monthly basis, EFI platform users receive an automated report with their updated overall financial crime risk score, scores for each of nine risk themes, and underlying findings and key risk indicators.