WASHINGTON — National banks will soon have to be mindful of the impact on foreign banks' customers if they cut off relationships with those institutions and provide documentation about their reasoning for dropping the account, Comptroller of the Currency Thomas Curry said Wednesday.
Under guidance expected to be issued shortly, Curry said financial institutions must establish "effective governance" over risk strategy and keep senior management informed of decisions involving correspondent banking relationships.
The goal is to end the practice of "de-risking," under which U.S. banks have severed correspondent banking relationships with foreign institutions in certain areas in order to be free of the compliance burden of keeping them open.
"The concern we all share is to protect our financial system from being misused by criminals and terrorists," Curry said in prepared remarks for a speech in Las Vegas before the Association of Certified Anti-Money Laundering Specialists. But "when a large number of banks withdraw from foreign correspondent banking relationships, it can lead to entire regions being cut off from the positive effects of modern financial systems and broader financial inclusion."
The guidance will take the form of best practices, he said, helping banks to determine whether to retain or cut off a tie to a correspondent bank.
One of those practices will be keeping in mind the impact of their decisions on the customers of foreign correspondent banks, and to "consider specific information these customers may provide that may mitigate risks."
If a bank does end up terminating a relationship, it must document its decision-making process with a "clear audit trail," Curry said.
In his speech, the comptroller acknowledged the difficulties banks face in balancing regulatory compliance with their own business objectives.
"That's no easy task, given the complex environment in which banks operate," Curry said. "Multiple financial regulatory, law enforcement and other agencies are involved in almost every situation."
Curry struck a sympathetic tone on financial institutions' decisions to avoid being involved in certain regions that pose anti-money-laundering or terrorism financing concerns.
"In such an environment, it is not surprising that some banks have chosen to reduce their risks and shrink their exposure and international business portfolios," he said.
But the comptroller also responded to charges that banks' de-risking decisions are a result of overinvolvement on the part of regulators.
"The OCC generally does not direct banks to open, close, or maintain individual accounts, nor does the agency encourage banks to terminate entire categories of customer accounts," said Curry. "A decision to terminate a banking relationship or to exit a line of business resides solely with the bank."
When Curry first announced in March that he was preparing to issue guidance on de-risking, the news caused trepidation among bankers who worry they are already being caught between a rock and a hard place.
"The regulators are saying, 'OK, don't de-risk,' " said Eric Lorber, a senior associate at the Financial Integrity Network, in response to Curry's March speech. " 'But at the same time, do enhance due diligence and if you find a problem, you won't necessarily be penalized.' "