Further pressure on correspondent banking in Africa
Does the latest pronouncement from the Wolfsberg Group point to a further squeeze on access to correspondent banking services in Africa?
The availability of such services on the continent has been in steady decline over the last few years as the largest international groups have continued their “de-risking” strategies in relation to certain jurisdictions.
The drivers for the ongoing withdrawal of correspondent banking services to a number of emerging market countries have been well documented by both the IMF (its report of June 2016) and the FSB.
Evolving risks and regulatory drivers have been a key component of this. Where for example a correspondent bank is unable to conduct the required level of customer due diligence to mitigate the risks identified it may be required to terminate the CBR with the respondent bank.
One of the tools used by the leading banks in connection with their due diligence of CBRs is the correspondent banks due diligence questionnaire produced by the Wolfsberg Group. An updated version of the questionnaire was produced in October 2017 but has since had its availability restricted. The Wolfsberg Group has decided that it should only publish its latest DDQ more widely once an additional set of materials has been completed. This is in order to limit the ability of third parties to interpret what it is that the Group intended with the DDQ and will include updated publication guidance (who this applies to, reasons for doing it, expectations for implementation); completion guidance (a question by question explanation of what each question means and how to respond to it) and FAQs.
The updated DDQ goes much further than either of the previous (2004 or 2014) versions which were adopted and utilised according to the Group as very much a "minimum" question set. Instead the updated DDQ is intended to constitute a "reasonable and enhanced" question set likely to be satisfactory in most situations, barring very exceptional cases.
The risk now for those countries in Africa that have seen their access to CBRs curtailed in the wake of the “de-risking” agenda across the international banking community is that the updated DDQ and accompanying documentation could operate to compound the difficulties already faced by those countries as regulatory expectations in international banking continue to increase and industry practices are forced to evolve in order to address them.