Correspondent Banking Under Pressure: The De-Risking Paradox and Its Financial Crime Consequences

Correspondent banking — the network of relationships through which financial institutions access foreign markets and process cross-border payments — has been contracting for over a decade. Global correspondent banking relationships declined by approximately 25% between 2011 and 2024, according to the Bank for International Settlements. This de-risking trend, driven primarily by concerns about money laundering, sanctions exposure, and the rising cost of compliance, has created a paradox that regulators and the financial industry are only now beginning to fully confront.

The paradox is straightforward: by withdrawing correspondent banking services from higher-risk jurisdictions, global banks have not eliminated the underlying financial flows. Instead, they have pushed them into less transparent channels — informal value transfer systems, nested accounts, and unregulated payment corridors — where the risk of money laundering and terrorist financing is significantly higher. De-risking, intended as a risk mitigation strategy, has in many cases amplified the very risks it sought to address.

For compliance leaders at global banks, fintechs seeking to fill the gaps left by traditional correspondent banks, and regulators attempting to balance financial inclusion with financial integrity, this tension defines one of the most consequential policy debates in modern financial crime compliance.

Regulatory, Enforcement, and Market Context

FATF has repeatedly warned against indiscriminate de-risking, emphasising that the risk-based approach requires institutions to manage risk rather than simply avoid it. The Wolfsberg Group's updated correspondent banking due diligence questionnaire, released in late 2025, attempts to standardise the information exchange between correspondent and respondent banks, reducing duplication and enabling more consistent risk assessment. The Committee on Payments and Market Infrastructures at BIS has published detailed analysis showing that de-risking disproportionately affects Small Island Developing States, post-conflict economies, and regions dependent on remittance flows.

Enforcement actions continue to reinforce the compliance burden on correspondent banks. US authorities have imposed billions in penalties on institutions that failed to adequately monitor correspondent banking relationships, while simultaneously expecting banks to maintain access for legitimate customers in developing economies. The European Banking Authority has introduced supervisory expectations requiring banks to document and justify de-risking decisions, creating accountability for both the maintenance and termination of correspondent relationships.

What the Data Is Showing

BIS data shows that while the number of active correspondent banking relationships continues to decline globally, the concentration of remaining relationships has intensified. A smaller number of global banks now process a larger share of cross-border payments, creating systemic concentration risk. In the Pacific Islands, some jurisdictions have been reduced to a single correspondent banking relationship, meaning the loss of that one connection would effectively sever the country from the global financial system.

The financial crime implications are measurable. Research by the World Bank and ACAMS indicates that remittance costs to de-risked corridors have increased by an average of 3.2 percentage points, pushing more volume toward informal channels. UNODC estimates that informal value transfer systems now handle over USD 200 billion annually in flows that were previously processed through regulated banking channels, representing a significant expansion of the unmonitored financial ecosystem.

Implications for Financial Institutions

Institutions maintaining correspondent banking relationships need to invest in proportionate, risk-based due diligence that goes beyond the checkbox approach. This means leveraging technology — including network analytics, transaction pattern analysis, and real-time screening — to monitor respondent bank activity at a level of granularity that was previously cost-prohibitive. The Wolfsberg questionnaire provides a useful framework, but institutions must supplement it with ongoing monitoring that reflects the dynamic nature of correspondent banking risk.

For fintechs and payment service providers seeking to operate in corridors abandoned by traditional banks, the opportunity is significant but comes with commensurate compliance obligations. Regulators will hold new entrants to the same standards as established correspondent banks, and the compliance infrastructure required — including sanctions screening, transaction monitoring, and customer due diligence on downstream relationships — must be robust from day one.

Conclusion

The de-risking trend in correspondent banking has created unintended consequences that undermine the objectives of financial crime prevention. Resolving this paradox requires a collective shift toward risk management rather than risk avoidance, supported by technology-enabled due diligence, standardised information sharing, and regulatory frameworks that hold institutions accountable for both the risks they accept and the risks they create by withdrawing services.

Suggested Next Steps

• Reassess your correspondent banking risk framework to ensure de-risking decisions are documented, justified, and reviewed at appropriate governance levels.

• Invest in technology-enabled monitoring of respondent bank transaction activity, moving beyond periodic reviews to continuous risk assessment.

• Adopt the updated Wolfsberg Correspondent Banking Due Diligence Questionnaire as a minimum standard and supplement with jurisdiction-specific risk indicators.

• Engage with industry forums and public-private partnerships focused on maintaining correspondent banking access in higher-risk corridors through collaborative risk management.

Sources: BIS, FATF, Wolfsberg Group, World Bank, UNODC, ACAMS, European Banking Authority

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