The Wolfsberg Correspondent Banking Due Diligence Questionnaire 2017
3 November 2017,
Bachir El Nakib (CAMS) Senior Consultant, Compliance Alert (LLC), Qatar-Lebanon
Under Wolfsberg Principles, the world's largest banks has released a detailed, uniform questionnaire aimed at reducing the costs associated with conducting effective due diligence when offering correspondent banking services as part of cross-border clearing relationships.
The KYB (Know Your Bank) Customer Due-Diligence questionnaire was developed over the last year and half by the Wolfsberg Group, which comprises 13 major banks and works to develop standards for combating financial-transaction crime. Some senior compliance officials with Wolfsberg Group banks hope that, among other things, the questionnaire will ease or even reverse a recent trend in which many large banks have felt compelled to curtail correspondent banking activity because compliance costs outweighed revenues, a trend commonly known as "de-risking."
The new, 110-question due diligence questionnaire, which includes 300 data points in follow-up questions, replaces a 28-question form Wolfsberg released in 2004.
Where the original document asked whether respondents had an AML program and an officer in charge, the updated version digs deeper, demanding details such as whether they conduct enterprise-wide sanctions and AML risk assessments, and which countries' sanctions lists they screen against.
The hope is that the updated questionnaire, which will soon be used by all of Wolfsberg's 13 members, will yield "a great deal of efficiency," said a senior compliance officer at a large U.S. bank involved in the development of the new due diligence standard.
Over the past 13 years, pressure from regulators forced banks to modify the 2004 questions, but each bank did so individually, leading to a variety of "bespoke" due diligence practices, said the U.S. compliance officer. That increased the compliance costs "by some measure" around correspondent banking and "threw the risk-reward balance out of whack," leading many banks to make business decisions to sever themselves from high-risk respondents.
Each year, banks' due diligence burdens "just kept ticking up and up, the number of questions, and the number of different types of questionnaires banks were using and... there was no uniform standard and each bank was evolving its own set of questions," said Patricia Sullivan, Standard Chartered's head of financial crimes compliance for the Americas, who also helped develop the new standard.
"These are now the types of AML control and sanctions control frameworks we would expect our respondent banks to have in place to make sure they understand their AML or sanctions risk exposure. We want to understand if they are screening their clients and their payments for the same types of risks that we're screening for," Sullivan said.
The new questionnaire at present is only being shared via a single so-called "utility" – a collective due diligence repository – which is run by the SWIFT bank messaging system. But when announcing the document, Wolfsberg vowed it would be made available to other "KYC utilities and the wider banking community." Banks that complete the questionnaire via a utility will be able to grant access to other banks.
Only when a recipient bank is concerned with a respondent's questionnaire responses will it need to "get on the phone and say 'OK, tell me about this, how is this going to present itself to us when you clear U.S. dollars?,'" the U.S. bank compliance officer said. This will avoid the costly "paper chase" that has been the standard in the past.
"That's the real value here. Not only is it going to increase the effectiveness of our due diligence, it's going to massively increase our efficiency. That will bring down the costs and ultimately balance out the risk reward pendulum again," he said.
If a questionnaire reveals that a respondent is weak in a given element of AML or sanctions compliance, Standard Chartered would seek to ensure the weakness was corrected, including through training it provides respondents via its country academies, instead of simply exiting the relationship, said Anurag Bajaj, Standard Chartered's head of transaction banking for the Americas.
Sullivan added: "So by being transparent about what it takes to have a cross-border clearing relationship, we want to have local regulators in some of our markets where we operate implement Know Your Customer standards for their institutions that are equivalent," she said. "So one, it will make our job a lot easier, but two, many countries and governments spend a lot of time worrying about de-risking, and through this capacity building we're going to help them, and essential banks in the countries, be very clear about what's required."
Wolfsberg banks are currently modifying policies and procedures to implement the new questionnaire and members hope it will be adopted broadly by banks around the world. One incentive will be that non-Wolfsberg banks can save time and money as they need only complete a single questionnaire that can then be shared broadly via the SWIFT utility, sources said.
The expectations and feedback of U.S. and UK regulators were worked into the questionnaire. Wolfsberg "is working on getting regulatory endorsement for this standard," Sullivan said. She added: "Those are ongoing discussions."
Wolfsberg considers the new questionnaire sensitive and declined to allow Thomson Reuters Regulatory Intelligence to disseminate it. However, banks can gain access by following the instructions available here.
The Wolfsberg Correspondent Banking
Due Diligence Questionnaire 2017
October 15, 2017
In 2002, the Wolfsberg Group first published Principles around Correspondent Banking (CB), including the articulation of a vision for international compliance standards and an international due diligence registry for Correspondent Banking. The Principles were followed in 2004 by the first Due Diligence Questionnaire (DDQ) which reflected existing industry practice at that time and has been used by many Banks as a good starting point in conducting due diligence on one another. The first DDQ was updated in 2014 but, until now, revisions had been relatively minor.
The Wolfsberg Group had long noted the need to revise the first DDQ recognising, however, that this would be a long and difficult task. The impetus to move ahead with a comprehensive review and update came from the publication of the CPMI's Consultation Report on Correspondent Banking issued in 2015. The first Recommendation of this Report focussed on the use of KYC Utilities in Correspondent Banking Due Diligence noting, "Relevant stakeholders (e.g. The Wolfsberg Group) may review the templates and procedures used by the different utilities and identify the most appropriate data fields to compile a data set that all utilities should collect as best practise and that all Banks have to be ready to provide to Banks which require the information."
Today the "CBDDQ" has been comprehensively updated, recognising that regulatory expectations have increased and industry practices have evolved. After a significant amount of discussion and exchange, the Group's member Banks have settled on one due diligence standard for international correspondent banking which is being made available to KYC utilities and the wider banking community. The Group hopes this will be adopted over time across the industry, as was the first DDQ, and will constitute the standard for KYC utilities, providing benefits to all Banks, for which Correspondent Banking due diligence remains an important but complex, time consuming and costly exercise.
The CBDDQ comprises a comprehensive set of questions which Wolfsberg Group member banks, and most of its respondents, were familiar with as these were already being used as part of the respondent bank due diligence process. Now, however, these questions have been refined and formulated in a consistent way, as well as being better structured to cover all main aspects required to conduct effective correspondent banking due diligence. As such, the CBDDQ goes much further than either of the previous (2004 or 2014) versions which were adopted and utilised very much as a "minimum" question set. Instead the CBDDQ constitutes a "reasonable and enhanced" question set likely to be satisfactory in most situations, barring very exceptional cases.
As a result, the Wolfsberg Group expects this CBDDQ question set, when completed, to satisfy FATF's Recommendation 13, that for "cross border correspondent banking" additional due diligence requirements must be undertaken, including for so called "high risk" correspondent banks.
The Wolfsberg Group members have committed to being early adopters of the CBDDQ and will support implementation with FAQ's and additional awareness raising materials, as well as conducting outreach to promote the CBDDQ as "the standard" for correspondent banking due diligence across the industry and foster its adoption by KYC utilities.
An important additional stakeholder group for correspondent banking due diligence is the public sector, including policy makers, supervisors and regulators. The development of the CBDDQ has been undertaken with regular updates being provided to key stakeholder groups in the public sector and the Wolfsberg Group is planning on continuing progress updates after publication.
How to obtain the CBDDQ?
The CBDDQ can be obtained by the banking community by contacting the Wolfsberg Group Secretariat at a dedicated address: firstname.lastname@example.org