16 Sep Correspondent Banking Agreements
If you have a correspondence banking business, the accounts of the foreign financial institution must be kept as follows: If penalties have been imposed on the foreign financial institution, all transactions carried out as part of the corresponding banking relationship must be continuously monitored in order to detect suspicious transactions. A correspondence bank must act as an intermediary when the issuing and receiving banks do not have transfer agreements. Any financial enterprise that engages in a correspondence banking relationship must: correspondence banks are a central part of the financial industry, as they allow domestic banks to operate if they cannot open branches in another place, especially in a foreign country. For example, a small national bank may work with clients from different countries with a correspondence bank to meet the needs of its clients internationally. It will also allow them to access the foreign financial market. Therefore, the correspondence bank collects a fee for this service, which is usually passed on by the national bank to the customer. In the example above, the mail-order bank deducts its transfer fee, normally $25 to $75, and transfers the money to the receiving bank in Japan. For transactions like this, the correspondence bank brings added value in two ways. It reduces the need for the national bank to establish a physical presence abroad and avoids working to conclude direct agreements with other financial institutions around the world. Correspondence banking requirements do not apply to credit card acquisition companies. The registration requirements that would normally apply to account openings do not apply to accounts that have already been opened as a result of a correspondent banking relationship. Take appropriate steps to verify whether the foreign financial institution has met the requirements that correspond to your requirements for identifying the customers of its customers who have direct access to the services provided as part of the corresponding banking relationship.
While there are some similarities between correspondence banks and intermediary banks – namely that they act as third parties for other banks – there is a big difference between the two. While correspondence banks normally conduct transactions on multiple currencies, an intermediary bank enters into transactions with a single currency. They are particularly important for national banks, which may be too small to carry out such transactions. As a rule, the corresponding accounts are the accounts of foreign banks that require the ability to pay and receive the national currency. Typically, a bank needs correspondence accounts to hold currency outside of jurisdictions in which it has a branch or related business. This is because most central bank resolution systems do not record deposits or cash to banks that do not operate in their country. With a few exceptions, actual funds held in a foreign currency account (whether for a bank or for its customer) are held in the corresponding account of the bank in the country of origin of that currency. Accounts between correspondence banks and the banks for which they provide services are called Nostro and Vostro accounts. An account managed by one bank for another is designated by the bank holding the Nostro account name or our account in your books.
The same account is called Vostro account by the counterparty bank – your account, but in our books. Typically, in a correspondence relationship, the two banks keep accounts for each other in order to track direct debits and credits between the parties….