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From Banking and Finance Law Daily, October 6, 2016

Banks should close correspondent accounts only after individual reviews: OCC

By Richard A. Roth, J.D.

The Office of the Comptroller of the Currency has provided guidance on how it expects national banks, federal thrifts, and federal branches and agencies periodically to reevaluate the risks of foreign correspondent accounts. The guidance appears to be a response to concerns that correspondent accounts are becoming unavailable for legitimate uses, as the OCC also emphasizes that it does not "encourage banks to engage in the termination of entire categories of customer accounts without regard to the risks presented by an individual customer or the bank’s ability to manage the risk" (OCC 2016-32).

Financial institutions are required to have in place policies and procedures for assessing the risks from foreign correspondent accounts, the OCC points out. Periodically reevaluating and reassessing both those risks and the bank’s ability to manage those risks are necessary parts of each bank’s risk management and its Bank Secrecy Act regulation due diligence. BSA/anti-money laundering risk management "should be an ongoing process, not a one-time exercise," and periodic reassessments are needed to account for changes in a bank’s risk profile.

The bulletin lays out both the OCC’s supervisory expectations and some best practices the agency has seen.

Supervisory expectations. As a starting point, each bank must perform periodic reevaluations and base decisions on whether to maintain or terminate a correspondent account based on the results of those reevaluations. The bank’s risk appetite, the risks that arise from each account relationship, the bank’s ability to manage the risks, and its ongoing due diligence process all must be considered. The guidance specifically recommends setting a limit on how long an inactive account can remain open.

Second, the procedures for reevaluating account risks and making retention/termination decisions actually must be implemented.

Third, a decision to terminate a correspondent account must be based on an analysis of the account’s risks and the bank’s ability to manage those risks. A decision to close an account must be based on the "unique facts and circumstances of each bank and foreign financial institution." Entire categories of correspondent accounts should not be closed without an analysis of the risks the individual foreign institutions present, the guidance says.

Best practices. The bulletin described four best practices that financial institutions should consider adopting:

  1. using a governance function to review the bank’s periodic reevaluation methods and monitor the resulting retention/termination recommendations;
  2. informing senior management of termination decisions regularly;
  3. communicating with foreign institutions about concerns and allowing them an opportunity to address those concerns before accounts are closed; and
  4. creating a clear audit trail for account closures.

Financial institutions should keep in mind the danger that account closures could reduce access to financial services to entire groups of customers or entire geographic areas, the bulletin says.

MainStory: TopStory BankSecrecyAct

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