Research by Accuity shows a 25 per cent drop in global correspondent banking relationships due to de-risking.

Driving the decline are US and European banks that are choosing to back out of or not enter markets rather than shoulder the risks and costs involved in complying with anti-money laundering (AML) regulations.

Global decline

Accuity, a global financial crime compliance, payments and know-your-customer solutions provider, suggests that between 2009 and 2016, correspondent banking relationships have reduced globally by 25 per cent.

The research highlights some important trends in de-risking and its impact on international trade and global banking.

“The irony is that regulation designed to protect the global financial system is, in a sense, having an opposite effect and forcing whole regions outside the regulated financial system,” says Accuity’s global head of strategic affairs, Henry Balani.

De-risking costs

Since the global financial crisis of 2008, regulators have imposed requirements for greater transparency, established higher liquidity thresholds for banks and have stepped up enforcement actions on institutions that violate AML regulations.

The challenges of increased operational costs as well as competitive and regulatory pressures have driven banks to withdraw from correspondent banking relationships.

Shadow banking

As a result, businesses in the regions most affected are struggling to access global financial systems.

Without this access, businesses are forced to use non-regulated, higher cost sources of finance and possibly expose themselves to shadow banking.