Correspondent banking relationship requirements

June 2017 

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.

March 2021 

March 2021

This guidance comes into effect on June 1, 2021.

This guidance explains the correspondent banking relationship requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations that apply to financial entities.

It answers the following questions:

  1. What is a correspondent banking relationship?
  2. What must I do to meet the correspondent banking relationship requirements?
  3. What correspondent banking relationship records do I need to keep?
  4. What must I do if the client of a foreign financial institution has direct access to services I provide?
  5. What are the exceptions to correspondent banking relationship requirements?

1. What is a correspondent banking relationship?

A correspondent banking relationship is created by an agreement or arrangement between a foreign financial institution and a Canadian financial entity (as defined below). In this relationship, the Canadian financial entity provides services to the foreign financial institution, such as international electronic funds transfers, cash management, and cheque clearing services.Footnote 1

For the purposes of a correspondent banking relationship, a Canadian financial entity is a:Footnote 2

  • bank;
  • cooperative credit society,
  • credit union;
  • caisse populaire;
  • federally or provincially regulated trust or loan company;
  • unregulated trust company;
  • financial services cooperative;
  • life insurance company, or an entity that is a life insurance broker or agent, that offers loans or prepaid payment products to the public, or maintains accounts for these loans or prepaid payment products, other than:
    • loans made by the insurer to a policy holder if the insured person has a terminal illness that significantly reduces their life expectancy and the loan is secured by the value of an insurance policy;
    • loans made by the insurer to a policy holder for the sole purpose of funding the life insurance policy; and
    • advance payments made by the insurer to a policy holder who is entitled to them.
  • credit union central when it offers financial services to non-members; and
  • an agent of the Crown when it accepts deposit liabilities while providing financial services to the public.

2. What must I do to meet correspondent banking relationship requirements?

Before you enter into a correspondent banking relationship, you must:Footnote 3

  • obtain information about the foreign financial institution and its activities to fulfil the related verifying and record keeping requirements outlined in this guidance;
  • ensure that the foreign financial institution is not a shell bank. If it is, you cannot enter into the correspondent banking relationship;Footnote 4
  • obtain the approval of senior management to enter into the correspondent banking relationship; and
  • set out in writing your obligations and the foreign financial institution's obligations for the correspondent banking services (for example, your correspondent banking agreement or arrangement, or product agreements).

You must also do the following for a correspondent banking relationship that you enter into:

  • Verify the name and address of the foreign financial institution by examining a copy of:Footnote 5
    • the foreign financial institution's banking licence;
    • its banking charter;
    • the authorization or certification to operate issued by the competent authority under the legislation of the jurisdiction in which the foreign financial institution was incorporated;
    • its certificate of incorporation; or
    • a similar document.
  • Take reasonable measures to verify, based on publicly available information if civil or criminal penalties have been imposed on the foreign financial institution for not respecting anti-money laundering or anti-terrorist financing requirements; and
    • If penalties have been imposed, you must monitor all transactions conducted in the context of the correspondent banking relationship for the purpose of detecting suspicious transactions.Footnote 6
  • Take reasonable measures to verify whether the foreign financial institution has anti-money laundering and anti-terrorist financing policies and procedures in place (including procedures for the approval of the opening of new accounts); and
    • If the reasonable measures you took were unsuccessful or the policies and procedures are not in place, you must take reasonable measures to monitor all transactions conducted in the context of the correspondent banking relationship for the purpose of detecting suspicious transactions.Footnote 7

3. What correspondent banking relationship records do I need to keep?

When you enter into a correspondent banking relationship, you must keep the following records about the foreign financial institution:Footnote 8

  • its name and address, primary business line and the names of its directors;
  • a copy of its most recent annual report or audited financial statement;
  • a copy of one of the following:
    • the foreign financial institution's banking licence, banking charter, authorization or certification to operate issued by the competent authority under the legislation of the jurisdiction in which it was incorporated;
    • its certificate of incorporation; or
    • a similar document;
  • a copy of the correspondent banking agreement or arrangement, or product agreements, defining the respective responsibilities of your financial entity and of the foreign financial institution;
  • the anticipated correspondent banking account activity of the foreign financial institution, including the products or services to be used;
  • a written statement from the foreign financial institution that it does not have, directly or indirectly, a correspondent banking relationship with a shell bank;
  • a written statement from the foreign financial institution that it is in compliance with anti-money laundering and anti-terrorist financing legislation in every jurisdiction in which it operates. For example, a Wolfsberg Group Correspondent Banking Due Diligence Questionnaire completed by the foreign financial institution; and  
  • a record of the measures taken to ascertain whether any civil or criminal penalties have been imposed on the foreign financial institution for not respecting anti-money laundering or anti-terrorist financing requirements, and the results of those measures. This record should be able to demonstrate the steps you took to ascertain this information and also include information on any civil or criminal penalties that have been imposed on the foreign financial institution.  

In a correspondent banking relationship, you do not need to keep account opening and transaction records when you open an account for a foreign financial institution.Footnote 9

Retention: At least five years after the day on which the last business transaction is conducted.Footnote 10

4. What must I do if the client of a foreign financial institution has direct access to the services I provide?

If, as part of a correspondent banking relationship, a client of the foreign financial institution has direct access to services you provide, you must take reasonable measures to verify whether the foreign financial institution:Footnote 11

  • has met requirements that are consistent with your requirements for verifying client identification for this client; and
  • has agreed to provide relevant client identification information to you upon request.

5. What are the exceptions to correspondent banking relationship requirements?

Correspondent banking relationship requirements do not apply to your activities related to the processing of payments by credit card or prepaid payment product for a merchant, including:Footnote 12

  • keeping correspondent banking relationships records (as listed under What correspondent banking relationship records do I need to keep?); and
  • taking reasonable measures to verify whether the foreign financial institution has anti-money laundering and anti-terrorist financing policies and procedures in place (including procedures for the approval of the opening of new accounts); and
    • if the reasonable measures you took were unsuccessful, or if the policies and procedures are not in place, you must take reasonable measures to monitor all correspondent banking transactions for suspicious activity.
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