Correspondent Banking and Derisking: What It Means for International Payments

When you send a bank transfer from your UK account to a recipient in, say, Nigeria or Bangladesh or a small Pacific island nation, you might assume the payment travels directly between your bank and the recipient's bank. In most cases, it does not. It travels through a chain of intermediary banks — correspondent banks — that hold accounts on behalf of banks in other countries. This network of correspondent relationships is the plumbing of international finance, and significant sections of it have been systematically dismantled over the past fifteen years.

Understanding this development — known as "derisking" — explains why international payments sometimes fail, are delayed, or become impossible through conventional banking channels. It also explains why fintech alternatives have grown so rapidly in certain payment corridors.

How Correspondent Banking Works

Bank A in the UK does not maintain a direct relationship with Bank Z in a small African country. Instead, Bank A holds accounts at Bank B in New York and Bank C in London. Bank Z holds accounts at Bank D in London and Bank E in Frankfurt. When you send a payment from Bank A to Bank Z, the payment routes through the correspondent chain — Bank A instructs Bank B or C, which routes to Bank D or E, which credits Bank Z.

Each correspondent bank in the chain:

• Holds a "nostro" account (their own account at the correspondent) and facilitates "vostro" accounts (correspondent banks' accounts held at them)
• Charges a fee for the service
• Applies its own compliance screening to the payment
• Bears the compliance cost of knowing the ultimate payer and payee

The SWIFT messaging system carries the payment instructions between banks in this chain. The whole process normally takes one to three business days for routine international wires.

What Is Derisking?

Derisking is the process by which large international banks — primarily US, UK, and European institutions — have terminated correspondent banking relationships with banks in certain countries, regions, or business sectors. The driver is compliance cost: maintaining a correspondent relationship requires the large bank to satisfy itself that its smaller correspondent is itself compliant with anti-money laundering (AML) standards. If that compliance assurance is expensive to obtain, if the correspondent's home jurisdiction has weak AML controls, or if the correspondent's client base includes politically exposed persons, sanctions-linked entities, or high-risk businesses, the large bank's exposure may outweigh the revenue from the relationship.

The inflection point was the 2012 fine imposed on HSBC: $1.9 billion for facilitating money laundering, primarily through HSBC Mexico and its correspondent relationships with Latin American banks. HSBC's post-fine compliance remediation — essentially building a compliance apparatus that applied global standards to every correspondent — was enormously expensive. Other major banks drew the rational conclusion that the compliance cost of maintaining correspondent relationships in high-risk jurisdictions was not worth the revenue.

The result has been a systematic reduction in correspondent banking relationships globally. The World Bank has documented a 20–30% reduction in correspondent relationships in some regions between 2012 and 2023.

Which Jurisdictions Are Most Affected?

The World Bank, IMF, and FATF have identified the following categories of jurisdiction as most severely affected by correspondent banking derisking:

• Caribbean island states: Belize, Caribbean Development Bank members, some Eastern Caribbean Currency Union states. Several Caribbean banks have lost their last US dollar correspondent relationship, making USD transactions impossible without intermediary countries.
• Sub-Saharan Africa: particularly West African countries (including Nigeria, Ghana, Senegal), East Africa (Somalia, parts of Kenya), and Central Africa.
• Pacific island nations: several Pacific states have had correspondent banking relationships significantly reduced, creating difficulties for government payments, remittances, and trade.
• Central Asian states: some Central Asian banks, particularly those perceived as having governance issues.
• High-risk sectors globally: money services businesses (MSBs), cryptocurrency exchanges, and politically exposed person (PEP) accounts have experienced widespread account closures by correspondent banks regardless of jurisdiction.

The Consequences

The consequences extend well beyond the banks directly involved:

For diaspora communities: the World Bank estimated that officially recorded remittances to low- and middle-income countries reached around $660 billion in 2023 — a sum that rivals or exceeds foreign direct investment flows into many of those countries. Derisking disrupts the payments channels through which diaspora workers send money home. Fees are forced higher as alternative channels bear more compliance cost.

For NGOs and humanitarian organisations: organisations providing aid in conflict zones (Syria, Sudan, DRC, Yemen, Gaza, Myanmar) face particular challenges. Their payments route through jurisdictions that correspondent banks have derisked or that are subject to sanctions. Several major NGOs have reported payment delays of days to weeks and, in some cases, inability to make time-critical humanitarian payments.

For legitimate businesses: a UK importer paying a supplier in a derisked country faces payment delays, correspondent fees, and the risk of a payment being frozen for compliance review. An exporter waiting for payment from a buyer in a derisked jurisdiction faces the reverse problem.

For economic development: the UN has highlighted derisking as a significant obstacle to economic development and financial inclusion in lower-income countries.

The Regulatory and Policy Response

The FATF — the international standard-setter for AML/CTF — has published guidance noting that financial inclusion and correspondent banking access are legitimate policy goals, and that blanket derisking of entire countries or sectors is inconsistent with the risk-based approach its standards require. Individual risk assessment of relationships, rather than categorical exclusion of jurisdictions, is the expected approach.

The World Bank has established a monitoring programme to track correspondent banking relationships. Several major jurisdictions have engaged in bilateral dialogue to address the problem, with some success in maintaining key corridors.

Nevertheless, banks' rational compliance incentives have not fundamentally changed. Regulatory guidance can recommend against blanket derisking; it cannot easily force banks to accept compliance risk that they assess as too large.

Practical Strategies for Affected Payments

For HNW internationally mobile individuals and business owners who need to make reliable international payments:

Bank with an institution that has a broad correspondent network. HSBC, Standard Chartered, and Citi are the three international banks with the most comprehensive global correspondent networks. If you need to make payments to or from challenging jurisdictions, these banks have maintained more relationships than most competitors. This is a genuine reason to maintain a primary account with one of these institutions even if you use fintech for day-to-day needs.

Use alternative payment rails for consumer transfers. Wise, Remitly, WorldRemit, and Western Union have built payment networks that partly bypass the traditional correspondent banking system. They use local banking relationships in destination countries, pre-positioned local funds, and aggregated payment flows to route money to destinations where SWIFT correspondent channels are difficult. These work well for consumer-level transfers (under £50,000 per transaction) but are less suitable for large commercial payments.

Test the route before committing large amounts. Before sending a large commercial payment to a new destination country, test with a small amount (£100) first. If it arrives cleanly, the corridor is functioning. If it is delayed or returned, investigate the alternative route before the large payment is time-critical.

Use a formal bank guarantee or letter of credit for high-value trade payments. For large import/export transactions with counterparties in derisked jurisdictions, a letter of credit issued through a major international bank provides a payment mechanism that bypasses the direct correspondent banking problem — the letter of credit is honoured by your bank (which has a correspondent network) rather than by a payment routed through the recipient's local banking system.

Maintain documentation. For large international payments, having a clean paper trail of the purpose of the payment, the identity of the recipient, and the commercial basis materially reduces the risk of a payment being held for compliance review. Compliance officers looking at a flagged transaction will release it faster if the purpose is clearly documented.

For humanitarian and NGO payments, the FATF humanitarian exemption and bilateral consultations with banks are avenues to pursue. Some banks have established dedicated humanitarian payment channels for qualifying organisations.

The information in this guide is for educational purposes only and reflects conditions as of mid-2026. Correspondent banking arrangements and regulatory frameworks change. This does not constitute financial or legal advice. Seek professional advice appropriate to your specific circumstances.

How Global Investments Can Help

Global Investments works with internationally mobile clients who hold assets and conduct transactions across multiple jurisdictions, some of which face correspondent banking challenges. We can advise on appropriate banking structures, help identify banks with robust coverage for specific payment corridors, and assist with the financial structure of international property acquisitions and business transactions where reliable payment routing is critical.