My banker told me that, in theory, managing his relationship with regulators and respondent banks is straightforward. Then he paused and said, “Actually, about as straightforward as explaining quantum physics to a five-year old.” And he’s right. Both understanding quantum physics and correspondent banking relationship obligations are tough.
Quantum Physics makes sense of the smallest things in nature – how the billions of sub-atomic particles work together.
Correspondent banks need to make sense of even the smallest transactions in a financial network and work together with their respondent banks to reduce financial crime risks.
Quantum physics tries to prove there is ‘weirdness’ at the subatomic level which indicates the existence of multiple universes.
Correspondent banks have to prove they are complying with both multiple universes of regulations, as well as its own risk management obligations.
In Quantum physics reality is complex, not fixed and shifting.
For Correspondent banks the reality is that maintaining an effective anti-financial crime (AFC) program entails complexity and commitment to address shifting financial crime vectors and proactive engagement along the entire correspondent banking network.
Dealing with the above challenges requires significant effort, both for AFC experts and rocket scientists (but that’s a longer discussion).
Correspondent banks need relationships with respondent banks that make their lives easier not more difficult – they don’t create additional enforcement risks and they minimize compliance burdens. Getting comfortable with a respondent bank’s AFC program means having as complete an understanding of their AFC program as you do your own. You have to do the hard work.
• Assess the risk of the respondent bank’s business and operating strategy
• Develop a governance structure providing for appropriate escalation as necessary
• Escalation paths need to be staffed by experienced, well-trained and engaged professionals
• Develop a compliance culture
• Ensure regular, thorough, and independent reviews and internal audits of the AFC program
Both rocket science and AFC are critical to the world. Rocket scientists drive innovations which lay the groundwork for our future. AFC experts secure the world so we can take advantage of that future.
And if you do want to explain quantum physics to a five-year old, try quantum physics for kids.