Nested Correspondent Banking Example
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Correspondent banking is the provision of a current or other liability account and related services to another financial in stitution including affiliates used for the execution of third party payments and trade finance as well as its own cash clearing liquidity management and sho rt term borrowing or.
Nested correspondent banking example. Correspondent accounts are the backbone for much of the international wire transfers. Nested correspondent accounts take the inherent risk associated with correspondent accounts and increases it by 1000. A correspondent payable through a nested account is an arrangement used by some to move money between financial institutions in foreign countries and financial institutions in the united states. In order to get the funds to the pies account apples must place the money under a different name in an account at the bank of ice cream in lebanon which is not the subject of sanctions for example.
Bank may establish a regular correspondent account with a service provider foreign bank. A correspondent account is one maintained in a us. Learn what correspondent banking really is with a real world example and how it drives international. It then instructs bank of ice cream to transfer the funds via its correspondent account to bank pies.
It cannot channel funds through its own correspondent bank accounts to bank pies in the usa directly. Nested correspondent banking refers to the use of a banks correspondent relationship by a number of respondent banks through their relationships with the banks direct respondent bank to conduct transactions and obtain access to other financial services. Nested correspondents allow an unapproved financial institution access to the. Guidance on correspondent banking services this guidance should be read in conjunction with the fatf recommendations especially recommendations 1 6 7 10 11 13 14 16 20 and 26 their interpretive notes and the glossary.
The service provider foreign bank in turn acts as a. Bank by a foreign financial institution. For example bank apples in iran is a sanctioned entity. It becomes a nested account when that institution permits another financial institution access to the account.
Nesting is a relatively common practice.
