What is Correspondent Banking?

Last updated: 3 November 2026

What is correspondent banking?

Correspondent banking is an arrangement in which one bank (the correspondent) provides services to another bank (the respondent), typically so the respondent can serve customers in currencies or markets where it has no presence. Services include payments, clearing and settlement, foreign exchange, trade finance and cash management.

The respondent usually holds an account with the correspondent, known as a nostro account from the respondent’s side and a vostro account from the correspondent’s side. The correspondent then processes transactions for the respondent’s customers, often without any relationship with them or direct visibility of who they are.

What are the key terms in correspondent banking?

Why is correspondent banking high risk for money laundering?

The correspondent is exposed to customers it has never onboarded. Volumes are high, payments move quickly across borders, and the information attached to a payment may be thin. Nested and payable-through structures add layers between the correspondent and the underlying parties, which can hide shell companies, sanctioned parties and money laundering flows.

Sanctions exposure is a major concern. A correspondent can face enforcement for processing payments that involve sanctioned parties, even when they originate several steps away. Many banks have responded by exiting relationships (“de-risking”), which cuts costs but can also limit access to the financial system for entire regions.

What do regulators expect from banks in correspondent relationships?

• FATF: Recommendation 13 requires banks to gather enough information on the respondent to understand its business, assess its reputation, supervision and AML/CFT controls, obtain senior management approval, and never deal with shell banks. For payable-through accounts, the bank must be satisfied the respondent has performed CDD on customers with direct access and can provide that information on request. See the FATF guidance on correspondent banking services and the FATF Recommendations.
• United States: Section 312 of the USA PATRIOT Act requires due diligence on correspondent accounts for foreign financial institutions, with enhanced measures for higher-risk respondents. Section 313 prohibits correspondent accounts for foreign shell banks.
• European Union: EU rules require enhanced due diligence on cross-border correspondent relationships with respondents outside the EU. The requirement carries into the EU AML Regulation, which applies from July 2027. See our EU AMLA technology readiness hub.
• United Kingdom: The Money Laundering Regulations 2017 set additional measures for certain correspondent relationships.
• Industry practice: The Wolfsberg Group publishes the Correspondent Banking Due Diligence Questionnaire (CBDDQ), which many banks use to collect respondent information.

What does effective correspondent banking due diligence look like?

• Risk-rating every respondent using a risk-based approach, covering jurisdiction, ownership, products, customer base and the quality of its AML controls.
• Identifying the respondent’s ultimate beneficial owners and screening the respondent, its owners and its management against sanctions lists and adverse media.
• Understanding whether the respondent offers nested or payable-through services, and what controls apply to them.
• Refreshing due diligence periodically and when risk events occur, not only at onboarding.
• Monitoring the relationship’s activity against what the respondent said to expect.

How can technology help manage correspondent banking risk?

The core challenge is visibility into activity the correspondent does not originate. Transaction monitoring tuned to respondent behavior can spot shifts in volume, geography or counterparties, and transaction screening checks payment messages against sanctions lists before funds move. Entity resolution helps link parties across payment data, and AI can help with periodic respondent reviews.

SymphonyAI supports these controls through transaction monitoring, sanctions screening and KYC and CDD solutions. Aresbank, a Madrid-based corporate bank that offers correspondent banking and trade finance between Europe and the MENA region, selected SymphonyAI to replace manual monitoring controls with automated transaction monitoring that covers both traditional and correspondent banking. Detection rules were tuned to its trade routes, where sanctions evasion and trade-based money laundering are key concerns.

FAQs

What is the difference between a correspondent bank and a respondent bank?
The correspondent provides the account and services, while the respondent uses them to serve its own customers. The same bank can be a correspondent in one relationship and a respondent in another.

What is a nested account in correspondent banking?
A nested account arises when a respondent uses its correspondent relationship to serve other foreign banks. It is higher risk because the correspondent has even less visibility of the underlying parties.

Why do banks de-risk correspondent relationships?
Compliance costs and the risk of enforcement can outweigh the revenue from a respondent. Better due diligence and monitoring help banks keep relationships they would otherwise exit, as in Aresbank’s move to automated transaction monitoring for its correspondent banking business.

Is correspondent banking the same as payment processing?
Not exactly. Payment processing is one of the services a correspondent bank provides, alongside clearing, settlement, FX and trade finance.

Do banks need senior management approval for new correspondent relationships?
Yes, under FATF Recommendation 13, banks should obtain senior management approval before establishing new correspondent relationships. Many institutions also require approval for material changes in risk.