Correspondent banks act as an intermediary between two banks in different countries that do not have an RMA agreement between them. This means they can’t send secure messages via SWIFT, and can’t send the requested currency. These correspondent banks are typically large enough that they act on a global scale, and can thus afford to have agreements with a lot more banks than smaller, more local banks.
Typical correspondent bank responsibilities include:
- Clearing and settlement between originating and beneficiary bank.
- Foreign exchange between banks, managing conversion processes.
- Compliance and regulatory management, helping with adherence to AML, KYC and other regulatory requirements.
- Communication and messaging, acting as a communication channel between originating and beneficiary banks.
- Account services, providing account services, such as maintaining foreign currency or facilitating liquidity management.