The Start of a Beautiful Friendship.
The late, great Henry Ford said that “Coming together is a beginning, staying together is progress, and working together is success.” With that statement, he more-or-less captured the essence of relationship building and partnership in business, mercifully omitting some of the grittier details. Naturally, it’s not quite that simple; the achievement of each of these stages takes a lot of hard graft: making the right choices when establishing a business relationship; having the right resources to cement the union and keep it going to the best mutual advantage.
BAFT Playbook v OCC Third Party Guidance.
The Bankers Association for Finance and Trade (BAFT) lays out a solid series of recommendations for Responders in establishing a Correspondent Banking relationship in its Respondents Playbook, published in August 2023. This document represents an invaluable guide to establishing and maintaining a Correspondent account relationship, weighing benefit against risk whilst considering all the aspects of legal activity, communication and due diligence that ensue.
Previously we have dissected the OCC (Officer for the Comptroller of the Currency) bulletin 2023-17 Third-Party Relationships: Risk Management (TPRM) Guidance that, like the BAFT Playbook, provides a framework for banks to assess and manage risks associated with initiating and maintaining these relationships, including their Custodians.
Whilst quite different in the nature of relationships that they aim to shepherd, these two pieces of guidance are similar in the thrust of their message: sound data and data management, effective communication, rigorous due diligence and transparent governance between client and supplier. The common requirement of each – in the exchange and use of the right data with its counterparty Network to conduct business effectively – remains the same: Information and communication.
‘Information’ and ‘communication’ are often used interchangeably, but they signify quite different things. Information is the data provided; communication is the transfer of that data. Therefore, the means of facilitating each needs a robust and versatile solution that allows the data to be securely and efficiently stored and transferred, converted into intelligence and used for the governance of the relationship, whether it is proposed or ongoing.
The factors that must be considered in the establishment of these relationships are too numerous and complex to be even summarised here but BAFT’s Playbook states that “approximately two-thirds of the Correspondent banks surveyed consider three major commercial factors when evaluating a prospective partnership: (1) potential profitability; (2) expected costs (including financial crime compliance costs) of service delivery; and (3) the creditworthiness of the Respondent”.
In these assessments come the demanding procedures of the initial (onboarding) and refreshed (triggered or periodic) customer due diligence (CDD)/know your customer (KYC) processes as well as transaction monitoring and reporting, all of these continuing as the relationship matures.
The Playbook also states that “ultimately, it is the Correspondent bank that determines whether a relationship with a Respondent bank will be established or continued. A Respondent bank, therefore, must understand the factors that influence the Correspondent bank’s choice to open a new or maintain an existing relationship.”
The Respondent must be equally circumspect, guided by the OCC recommendations, in ensuring proper due diligence in selecting a Correspondent, pinpoint contracts and SLAs, ongoing performance management, effective cost and account management. The list goes on – for both parties.
Both sides of the arrangement must benefit equally well from utilities that, soundly managed, will complement each other; the Correspondent from an onboarding solution and the Respondent from a Correspondent Network Management tool.
A One-Stop Shop
Governance of the relationship is facilitated through the employment of solutions such as MYRIAD (end-to-end Network and Vendor Management) and Embus (Client Onboarding and Client Lifecycle Management). Each fosters centralisation and expedites the processes and objectives of the departments that they serve. Emerging partnerships are cemented as greater control is established across Networks. Costs are reduced and reporting lines are strengthened and more clearly defined.
Furthermore, specific elements of processes are fulfilled by the relevant stakeholders via coherent workflows and issue resolution, forming a cohesive and shared outcome. The generation of targeted and instant reporting helps auditors simplify their remit, gathering data to deliver valuable business insights, as well as identify risk and / or compliance shortcomings. As a direct result, senior management can make informed decisions based upon information generated by firmwide contribution.
We have worked over the years to provide the banking industry with platforms that facilitate the onboarding of customers and the management of supplier Networks. Risk management and operational resilience are delivered as a staple within the modules that comprise them and they play directly to the rigours of the BAFT Playbook recommendations and OCC Guidance for TPRM.