Correspondent Banking Under Pressure: The De-Risking Dilemma Deepens in 2026

Correspondent banking — the network of relationships that enables cross-border payments — continues to contract in ways that threaten financial inclusion and paradoxically increase financial crime risk. The Bank for International Settlements reports that the number of active correspondent banking relationships has declined by 25% since 2011, with the steepest reductions affecting developing economies in Africa, the Pacific Islands, and the Caribbean. In 2026, this trend shows no sign of reversing.

De-risking — the wholesale termination of correspondent relationships with entire regions or categories of respondent banks — remains the default response for many global banks facing uncertain regulatory expectations and disproportionate compliance costs. While understandable from an individual institution's risk-return calculus, the aggregate effect is corrosive: displaced payment flows migrate to less transparent channels, including informal value transfer systems and unregulated fintech platforms.

The challenge for regulators and the industry alike is to develop a framework that preserves the integrity of the correspondent banking network while ensuring that compliance costs and supervisory expectations are proportionate to actual risk. Several promising initiatives are underway, but the gap between policy aspiration and operational reality remains significant.

Regulatory, Enforcement, and Market Context

The Committee on Payments and Market Infrastructures (CPMI) and the Financial Stability Board have jointly published an updated roadmap for enhancing cross-border payments, with correspondent banking reform as a central pillar. The roadmap calls for standardised due diligence questionnaires, improved data-sharing frameworks between correspondent and respondent banks, and the adoption of ISO 20022 messaging standards to improve payment transparency.

FATF's revised Recommendation 13 guidance, finalised in late 2025, attempts to clarify the expectations around correspondent banking due diligence, emphasising that the obligation is risk-based rather than prescriptive. The guidance explicitly states that blanket de-risking of entire jurisdictions or customer categories is inconsistent with the risk-based approach — a message that regulators in the US, EU, and Asia-Pacific have echoed in their supervisory communications.

Despite these policy signals, enforcement reality tells a different story. Several major banks have faced significant penalties for deficiencies in correspondent banking controls, creating a chilling effect that incentivises risk avoidance over risk management. Until the regulatory framework delivers consistent consequences for both under-compliance and over-de-risking, the incentive structure will continue to favour withdrawal.

What the Data Is Showing

BIS data from its 2025 correspondent banking monitoring report shows that while the total volume of cross-border payments processed through correspondent channels has remained relatively stable, the concentration of these flows through fewer, larger banks has intensified. The top 20 correspondent banks now process approximately 80% of global cross-border payment value, up from 65% a decade ago. This concentration creates systemic risk and reduces competition.

The World Bank's Global Findex data indicates that remittance costs to sub-Saharan Africa remain the highest globally at an average of 7.9%, well above the Sustainable Development Goal target of 3%. Researchers attribute a significant portion of this cost premium to the loss of correspondent banking access, which forces payment providers to route transactions through longer, more expensive intermediary chains.

Implications for Financial Institutions

Financial institutions maintaining correspondent banking portfolios must adopt a more nuanced, data-driven approach to respondent bank risk assessment. This means moving beyond binary risk ratings toward continuous monitoring models that incorporate transaction-level data, jurisdictional risk intelligence, and respondent bank control assessments. The Wolfsberg Group's updated questionnaire provides a useful framework, but institutions must go beyond checkbox compliance to genuine risk understanding.

For respondent banks — particularly those in developing markets — the imperative is to demonstrate compliance credibility to correspondent partners. This includes investing in AML/CFT infrastructure, seeking independent assessments of their compliance frameworks, and engaging proactively with correspondent banks on information-sharing and transparency.

Technology solutions, including payment-level due diligence platforms and shared KYC utilities, offer a path toward reducing the cost and friction of correspondent banking compliance. Institutions that invest in these capabilities can maintain broader correspondent networks while managing risk effectively — creating a competitive advantage in an increasingly concentrated market.

Conclusion

The de-risking of correspondent banking is not a problem that will resolve itself. It requires coordinated action by regulators, global standard-setters, and the banking industry to align incentives, reduce compliance friction, and preserve the financial infrastructure that connects the global economy. Institutions that approach this challenge with sophistication — balancing risk management with financial inclusion — will be best positioned to serve their clients and meet their regulatory obligations.

Suggested Next Steps

• Review your correspondent banking portfolio against FATF's updated Recommendation 13 guidance, ensuring risk assessments are genuinely risk-based rather than jurisdiction-based.

• Implement continuous transaction monitoring for respondent bank activity, supplementing periodic due diligence reviews with real-time payment analytics.

• Engage with industry initiatives such as the CPMI roadmap and SWIFT's KYC Registry to reduce duplication in due diligence processes.

• Assess technology solutions for payment-level screening and shared due diligence utilities that can reduce per-transaction compliance costs.

Sources: BIS Correspondent Banking Monitoring Report 2025, FSB Cross-Border Payments Roadmap, FATF Recommendation 13 Guidance, Wolfsberg Group Correspondent Banking Questionnaire 2025, World Bank Global Findex 2025.

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