Agencies issue cross-border transaction guidance

Dec. 21, 2009 – NCUA, along with the FDIC, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve, issued interagency guidance Friday on how U.S. financial institutions should conduct cross-border transactions.

The interagency guidance references a paper issued by the Basel Committee on Banking Supervision in May 2009 on the issue. In the paper, the committee outlined the inherent risks in cover payment arrangements in cross-border funds transfers where an originator’s bank does not send all the transaction information to an intermediary bank (cover intermediary). In these scenarios, the latter institution is consequently unable to effectively filter or monitor transactions. The lack of transparency can impair the cover intermediary’s risk management and compliance.

The interagency guidance clarifies the U.S. federal banking supervisors’ perspective on certain points in the paper, including expectations for intermediary banks on Office of Foreign Assets Control sanctions screening and transaction monitoring to comply with Bank Secrecy Act/anti-money laundering requirements. In addition, it discusses the banking supervisors’ approach to reviewing institutions’ risk management practices with respect to cross-border funds transfers, including cover payments.

When conducting cross-border transactions, financial institutions should be mindful that examiners will review whether the institution has current BSA/anti-money laundering and OFAC risk assessments that address payments operations. Examiners will also take into consideration all relevant factors, including correspondent banking relationships, volume and jurisdictions of funds transfers, and the role of the institution in funds transfers (i.e., whether it is the originator’s bank, intermediary bank or beneficiary’s bank)."