Enhanced Due Diligence For Correspondent Accounts

Document Properties

  • Type of Publication: Letter
  • Our File: P2200-22
  • Date: February 22, 2002
  • To:
    • All Banks
    • Federally Regulated Trust and Loan Companies

As you may be aware, the USA Patriot Act became law on October 26, 2001 in the United States. Among other things, this Act prohibits certain financial institutions operating in the USA from establishing, maintaining, administering or managing correspondent accounts on behalf of foreign banks that do not have a physical presence in any country (i.e. a "shell bank"). This prohibition does not apply to a foreign bank that is affiliated with a deposit-taking institution that is, in turn, subject to appropriate supervision and has a physical presence in the jurisdiction in which it is supervised. Financial institutions operating in the United States are required to seek certifications from their correspondent banks to the effect that they are not shell banks and that they are regulated in the jurisdiction in which they have a physical presence.

In addition, the Basel Committee on Banking Supervision, Bank for International Settlements (BIS), issued on October 4, 2001 a paper entitled Customer Due Diligence for Banks (http://www.bis.org/publ/bcbs85.pdf) which sets out guidance for banks and bank supervisors. One of the topics deals with correspondent banking.

The BIS paper calls upon banks to refuse to enter into, or continue, correspondent-banking relationship with shell banks.

In light of these two initiatives, we believe that Canadian deposit-taking institutions should be aware of the enhanced BIS standard for dealing with correspondent banking accounts and encourage them to adopt measures which will ensure that they do not enter into correspondent banking relationships with shell banks.

OSFI is of the view that the customer due diligence standards identified in the BIS paper represent a sound basis for ensuring that deposit-taking institutions have adequate controls and procedures in place to know whom their customers are. Accordingly, in the course of this year, we will be contacting various industry associations for input regarding the implementation of these standards in Canada.

Please direct any comments you may have regarding this letter to Brian Long, Director, Compliance Division at (613) 990-8838 or to Nicolas Burbidge, Senior Director, Compliance Division at (416) 973-6117.

  • Michael Hafeman
  • Assistant Superintendent
  • Specialist Support Sector