The New Face of Correspondent Banking

Ivan Garces


By Ivan Garces/ Kaufman Rossin

We live in a global marketplace, and correspondent banking has long been considered the backbone of cross-border payments. However, traditional correspondent banking is facing significant challenges from customers, regulatory and compliance burdens, and non-bank payment providers such as FinTech.

A March 2017 report by the International Monetary Fund (IMF) indicates that cross-border payments have remained relatively stable in terms of volume, yet the number of correspondent banking relationships has decreased.

While correspondent banking plays a key role in global trade, we have seen a number of banks scale back or pull out of correspondent banking relationships all together in response to risk and compliance concerns. Whether you call it de-risking or re-risking, establishing and/or maintaining correspondent banking relationships for foreign financial institutions can carry a heavy administrative and compliance burden for a U.S. financial institution, and the associated risks such relationships pose must be considered alongside potential profitability of such relationships.

In the world of global payments, banks have been seen as a trusted financial intermediary, generally offering reliability, transaction security, high standards and customer services. Yet, traditional global payment services can be costly and cumbersome.

The growth of financial technology firms (FinTech) and acceleration of technological innovation including blockchain and virtual payment services and digital currency (such as Ripple), boasting better transaction speed and lower costs, seem to be changing the landscape for global payments and disrupting the traditional manner in which financial products and services are delivered.

In fact, in the opening remarks of the ICC Banking Commission’s annual meeting earlier this month, Maria Fernanda Garza, ICC executive board member and CEO of Orestia, Mexico, cited new competition from innovative players as one of the top threats financial institutions are currently facing. She also mentioned potential benefits for banks who leverage FinTech innovations and partner with these new players.

One of the key challenges for banks that want to stay competitive with FinTech will be speeding up their payment processes. In the global payments realm, blockchain and other transformational technologies present opportunities for forward-looking banks to shorten trade finance processing times. However, there are also other more immediate ways for banks to start tackling this issue.

Having a strong working relationship and clear communication with correspondent banks will be key to increasing efficiency. Consistency, accuracy and completeness in payment instructions is one basic way to help speed up the process on the front line.

A lack of consistency in regulation is another big area that the financial services industry will need to consider in the coming months and years. Banks have been facing increased regulatory pressure post-9/11 and in the aftermath of the financial crisis and Dodd-Frank. However, newer players to the market like FinTech have yet to face similar requirements in areas such as anti-money laundering compliance, consumer protection and cybersecurity.


Ivan Garces, CPA, CFE, CAMS, CFF, is a risk advisory services practice leader and principal at Kaufman Rossin, one of the top 100 CPA and advisory firms in the U.S. Ivan can be reached at [email protected].