Section 13: Correspondence Relationship5

Section 13: Correspondence Relationship⁵

No: 18318/486

Date(g): 17/11/2019 | Date(h): 20/3/1441

Status: In-Force

Before entering into a correspondence relationship, the financial institution should collect sufficient information about the correspondent institution to obtain a full understanding of the nature of its work and learn about its reputation, the level of supervision applied to it, and the extent to which it applies the AML/CTF requirements.
Article (9) of the Anti-Money Laundering Law and Article (68) of the Law on Combating Terrorism Crime and Financing set forth the obligations that must be fulfilled by the financial institution before entering into a correspondence relationship.
13.1	Before entering into a correspondence relationship, the financial institution shall take sufficient measures to mitigate risks. These measures may include the following:
	a)	Collecting sufficient information about the correspondent institution to fully understand the nature of its work, the supervision applied to it and the risks to which it is exposed as well as evaluate its reputation based on the information available to the financial institution. This may include:
		•	The geographical areas in which the correspondent institution provides its services, taking into account those areas with shortcomings in the application of the AML/CTF requirements, as mentioned in Paragraph (4.7) under the Enhanced Due Diligence Section.
		•	Ownership structure of the correspondent financial institution, taking into account the case of correspondent institutions with a complex organizational structure as the financial institution should implement the measures mentioned in Paragraph (4.6) under the Enhanced Due Diligence Section.
		•	Services and products provided by correspondent institution, taking into account the products and services that may involve high risk from the perspective of ML/TF.
		•	Customers of the correspondent institution, taking into account the information available on customers that pose high risks due to their activities or characteristics when a large part of the correspondent institution’s business income depends on these customers.
		•	The supervisory authority of the correspondent institution, taking into account that the correspondent institution must be supervised by the central bank or a similar regulatory body as well as an internationally recognized regulatory environment and its compliance with the FATF Recommendations.
	b)	Verifying the extent to which the correspondent institution is subject to an investigation or control procedure related to ML/TF.
	c)	Evaluating the internal policies, controls and procedures to mitigate risks that are adopted by the correspondent institution to combat ML/TF by preparing a questionnaire that covers basic AML/CTF requirements and assesses the effectiveness of measures.
13.2	The financial institution should clearly understand the responsibilities of each party in the correspondence relationship from an AML/CTF perspective.
13.3	The financial institution should apply appropriate control measures as indicated under the Monitoring of Transactions and Activities Section, including continuous control measures for correspondence accounts to detect any unusual activity or behavior in the correspondence relationship.
13.4	The financial institution should be sufficiently satisfied that the correspondent institution does not allow its accounts to be used by a shell bank. The financial institution shall refrain from entering into -or continuing- a correspondence relationship with a shell bank or with a financial institution outside Saudi Arabia that allows its accounts to be used by a shell bank.
13.5	Approval of the senior management should be obtained before establishing new correspondence relationships, provided that the approval includes taking the measures mentioned in Paragraph (13.1) under the Correspondence Relationship Section and obtaining recommendations from the officer responsible for the AML/CTF compliance function.

⁵ Financial institutions must comply with the Correspondence Relationship Section in addition to the requirements of Rule (300-2-5) regarding non-resident commercial banks in the Rules Governing the Opening of Bank Accounts