Correspondent banking relationship requirements

Correspondent banking relationship requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) are applicable to financial entities.

June 2017

Correspondent banking relationship requirements

A correspondent banking relationship occurs when an agreement or arrangement for the provision of services is made between a foreign financial institution and a Canadian financial entity, namely a bank, credit union, caisse populaire, or trust company. Through correspondent banking relationships, financial entities can access financial services and provide a wide range of cross-border payment services to their customers in different jurisdictions, including cash management (e.g., interest-bearing accounts in a variety of currencies), international wire transfers, cheque clearing, payable through accounts and foreign exchange services.

Requirements related to correspondent banking relationships do not apply to credit card acquiring businesses.

Transactions between Canadian financial entities and foreign financial institutions must not take place until the following requirements have been met:

  1. Verify the name and address of the foreign financial institution.

    To verify the name and address of the foreign financial institution, you must examine a copy of its banking license, banking charter, authorization or certification to operate from a regulatory agency, certificate of corporate status, or another similar document.

  2. Ensure that the foreign financial institution is not a shell bank. If it is, you cannot enter into the correspondent banking relationship.

    A shell bank is a foreign financial institution that does not have a physical presence in any country. If a foreign financial institution does not have a physical presence, but is controlled by, or is under common control with a depository institution, credit union or another foreign financial institution that does have a physical presence in a country, then it is not considered a shell bank.

    In this context, physical presence means that an institution:  

    • is located at a fixed address in a country where the institution is authorized to conduct its banking activities;
    • can be inspected by the banking authority that issues the license to operate;
    • maintains its operating records; and
    • employs at least one full-time employee.
  1. Obtain the approval of senior management to enter into the correspondent banking relationship.
  2. Set out in writing both your and the foreign financial institution's obligations for the correspondent banking services.
  3. Take reasonable measures to determine whether the foreign financial institution has anti-money laundering and anti-terrorist financing policies and procedures in place, including procedures for the approval of new accounts. In this context, reasonable measures include asking the foreign financial institution for the information about their policies and procedures.
    • If the foreign financial institution does not have such policies and procedures in place, you have to take reasonable measures to conduct ongoing monitoring of all transactions within the correspondent banking relationship for the purpose of detecting suspicious transactions.

Confirming the existence of an entity and other obligations

Every financial entity that enters into a correspondent banking relationship must:

  1. Ascertain the name and address of the foreign financial institution – by examining a copy of the foreign financial institution's banking license, banking charter, authorization or certification to operate from the relevant regulatory agency, certificate of corporate status, or a copy of another similar document.

  2. Take reasonable measures, based on publicly available information, to determine if any civil or criminal penalties have been imposed on the foreign financial institution in respect of anti-money laundering or anti-terrorist financing requirements.

    • If penalties have been imposed on the foreign financial institution, ongoing monitoring must be conducted on all transactions within the correspondent banking relationship for the purpose of detecting suspicious transactions.

    • Ongoing monitoring activities may consist of:

      • monitoring transactions in higher risk scenarios, to ensure that controls are effective in detecting any unusual activity that may be occurring; or

      • having internal processes to further review certain activities, which may involve requesting transaction information from the foreign institution in order to clarify the situation and possibly clear the alert.

    • Transactions that could be considered high-risk in the context of correspondent banking relationships include:

      • large value or large volume transactions that involve numbered monetary instruments; or

      • transactions that appear unusual in the context of the relationship.

  3. Take reasonable measures to determine whether the foreign financial institution has met requirements consistent with your requirements for client identification for its customers that have direct access to the services provided under the correspondent banking relationship.

  4. Take reasonable measures to ensure that the foreign financial institution agrees to provide you with relevant customer identification data upon request. In this context, reasonable measures include asking the foreign financial institution.

Record keeping requirements for correspondent banking relationships

If you enter into a correspondent banking relationship, the following records about the foreign financial institution must be kept:

  1. its name, address and primary business line;
  2. the names of its directors;
  3. a copy of its most recent annual report or audited financial statement;
  4. a copy of one of the following legal documents:
    • the foreign financial institution's banking license, banking charter, authorization or certification to operate from the relevant regulatory agency;
    • its certificate of corporate status; or
    • a copy of another similar document;
  5. a copy of the correspondent banking agreement or arrangement, or product agreements, defining the respective responsibilities of each entity;
  6. the anticipated correspondent banking account activity of the foreign financial institution, including the products or services to be used;
  7. a statement from the foreign financial institution that it does not have, directly or indirectly, correspondent banking relationships with shell banks;
  8. a statement from the foreign financial institution that it is compliant with anti-money laundering and anti-terrorist financing legislation in its own jurisdiction;
  9. the measures you took to determine whether any civil or criminal penalties have been imposed on the foreign financial institution in respect of anti-money laundering or anti-terrorist financing requirements, and the results of those measures; and
  10. when reasonable measures are unsuccessful, you must record the measures taken, the date on which the measures were taken, and the reasons why the measures were unsuccessful.

Record keeping obligations that would normally apply to account openings do not apply to accounts already opened as a result of a correspondent banking relationship.

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