“PROMOTING FINANCIAL INCLUSION WITH SAFE AND SECURE CORRESPONDENT BANKING”

 By David Fleet, Managing Director, Client On-boarding and Management, Standard Chartered Access to safe, high-quality banking is something often taken for granted.

Just as we expect water when we turn on the tap and light when we flick a switch, we’ve come to rely on the rapid availability of checking accounts, ATMs and loans whenever and wherever we may need them. But we rarely consider the substantial network of secure resources required to make these conveniences a reality — and the challenges of providing access to financial services in the developing world.

Through correspondent banking, global banks are increasingly able to safely and securely deliver capital across the developed and developing world, forming the cornerstone of the global financial ecosystem. But for this system to function properly, it requires thorough risk management processes and standards, which must be unified across both large financial institutions and their smaller counterparts around the world. For global banks serving emerging markets, there is a balance to strike between providing customers with access to capital and the financial system, while managing potentially higher risks of doing business.

As a correspondent bank, Standard Chartered is a pioneer in increasing the availability of capital in the developing world. In recent years, we have embarked on several “in market” initiatives that engage clients, regulators and banks to discuss the best ways to fight financial crime. By working with the necessary parties on the ground, we can provide educational tools that help make correspondent banking safer for everyone, especially in areas of high demand such as Africa, the Indian subcontinent, and northern Asia. This open dialogue is not only a powerful risk management tool that raises the bar for all banks, but it also creates greater cross-border standardization, which will help to legitimize regional banks on a global level.

Where information is vast, the standardization of data is powerful. The key is to store and share data in a way that maximizes its efficacy. That’s why we often look to utility compliance solutions as a way to enhance our understanding of clients and counter parties, and to better align other banks with our risk management policies.

Utility solutions allow us and other banks to better normalize and share due diligence data to enhance our understanding of clients and counter parties.There are a number of advantages to this collaborative approach. First, having this kind of data so easily accessible means clients can be onboarded faster and with greater confidence. This decreases the latency between the introductory period and profitability, bringing down operational costs and increasing profit. The centralization of this data also allows for easier interpretation and comparison analyses of different potential correspondent banking relationships.For example, it allows for more efficient identification of irregularities and reduces the potential for financial crime.

Utility solutions can also serve as a powerful tool for financial inclusion, bringing more banks into the global financial ecosystem. They increase data transparency for a broader set of banks and their counterparties, making it far easier to conduct business with them. If a bank’s data is available through a centralized repository such as the SWIFT KYC Registry, which allows thousands of financial institutions to securely share ‘Know Your Customer’ data with each other, it’s a solid indicator that they have nothing to hide.

There are, however, challenges with the increased availability of data. The structuring of any shared system or database will have to rely on effective permissioning, ensuring that the stored data will only be available to accredited institutions. This helps safeguard the information with the necessary privacy and cyber security controls.

Additionally, the current methods of collecting correspondent banking data are relatively diverse. Standardization has progressed to the point where there may be one “language” of regulatory standard throughout the world, but there are still many “dialects” within those languages that can cause oversights and errors. Ironing out these issues is especially important given that such solutions dramatically increase in relevance as they become more widely adopted.

Standardization is best achieved through broad input: the more global institutions share their KYC information, the more effective the utility becomes. Standardization in and of itself is a powerful tool that can promote inclusion of additional correspondent banks. For local or regional banks, utility tools represent an opportunity to demonstrate compatibility with international standards and suitability for maintaining access to global sources of capital. Creating a single set of standards allows these banks to see a singular benchmark and work towards meeting it, allowing for less frictional capital access.

Correspondent banking only works if all financial institutions have an equal seat at the table.By giving smaller, regional banks a chance to meet global standards, utility solutions promote financial inclusion and help facilitate greater investment in the developing world. Together, the financial institutions of the world stand a real chance to significantly reduce financial crime and build trust in the global financial system.

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