New guidance on correspondent banking from the U.S. Treasury's Office of the Comptroller of the Currency (OCC) advises all OCC-supervised banks, as part of their best practices, to consider "the extent to which account closures may have an adverse impact on access to financial services for an entire group of customers or potential customers, or an entire geographic location." It also encourages banks to ensure a clear audit trail of the reasons and method used for account closure.
The guidance, Risk Management Guidance on Periodic Risk Reevaluation of Foreign Correspondent Banking, advises banks to consider mitigating information provided by foreign financial institutions, and provide them "sufficient time to establish alternative banking relationships before terminating accounts, unless doing so would be contrary to law, or pose an additional risk to the bank or national security, or reveal law enforcement activity."
After reviewing the policies, procedures, and criteria that banks use when conducting risk reevaluations and making correspondent account retention or termination decisions, OCC noted a range of practices that banks use in evaluating these risks. As the first OCC guidance on expectations for this area, the document describes best practices that banks should consider using to make decisions about foreign correspondent account risk reevaluations and closures.
Banks establish foreign correspondent accounts for foreign financial institutions to receive deposits from, to make payments or other disbursements on behalf of, or to handle other financial transactions related to the foreign financial institution. With respect to these accounts, a bank's due diligence program must consider all relevant factors and then design and implement controls to manage these risks effectively. A decision to close a correspondent banking account "may negatively affect access to financial services in the home country of the foreign financial institution, potentially resulting in financial inclusion concerns for that country," the guidance states. In addition, the processes used in making these decisions are not always clear to foreign financial institutions and may therefore be perceived by those customers or others as arbitrary or lacking a sound basis, or even pose reputation and litigation risk to the banks.
Periodic risk reevaluations of banks' foreign correspondent customers should guide the banks' decisions regarding foreign correspondent accounts. The guidance asserts that "banks with a clear understanding of the risk profiles of these customers may be more capable of providing banking services to such customers that historically have been considered higher risk," according to the guidance.
OCC states that banks should provide fair access to financial services and fair treatment of their customers. While OCC does not dictate which customers a bank should serve, it also does not encourage banks to terminate entire categories of customer accounts "without considering the risks presented by an individual customer or the bank’s ability to manage the risk," the guidance states.
Read the full guidance here.