February 22, 2017
To The Basel Committee on Banking Supervision
Japanese Bankers Association
Comments on the Consultative Document: Revised Annex on Correspondent Banking
We, the Japanese Bankers Association (“JBA”), would like to express our gratitude for thisopportunity to comment on the consultative document: Revised annex on correspondent banking,issued on November 23, 2016 by the Basel Committee on Banking Supervision (“BCBS”).
We respectfully expect that the following comments will contribute to your further discussion

1.

Comment on Annex 2 “Correspondent banking”(1) “II. Risk-based approach in the context of providing correspondent banking services”(i) Paragraph 7
When correspondent banks assess their ML/FT risks, it should be noted that, depending on thelaw of the country (jurisdiction), certain information needed to make an assessment may not beprovided. It should be specified that, under these circumstances, unavailability of information
should not be a factor for assessing the relationship as “high-risk.”(ii) Paragraph 7 (1) (b)It would be beneficial to clarify what is meant by “have access to.” Specifically, clarification isrequested as to whether nested account relationships are being referred to or whether it is“payable through” type access that is being targeted.
These two are exposed to different risk. The nested account is with less risk than the “payablethrough” type access, provided that the respondent bank is adequately monitoring the intra-groupaccounts.
(iii) Paragraph 7 (1) (c)○ Given that the “nested” relationship is further explained in “B. Nested (downstream)correspondent banking,” it should be specified that, when using the “nested” relationship as arisk indicator, the statements in “B.” should be considered. Nesting (Downstream
Correspondent Banking) should be treated carefully from a De-Risking perspective, as it has asignificant impact across developing countries and small-sized local financial institutions.
○ “Nested” relationships and “payable through”accounts should be treated separately in order toenhance risk-based decision making as they have differing risk profiles.

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(iv) Paragraph 7 (2) (d)It should be specified that “overall types of customers” of the respondent bank does not serve for
KYCC purposes, and rather for gaining a high-level understanding of the Respondent Bank’scustomer base. It should be made clear that this does not serve for KYCC purposes, which is also
considered to be a de-risking factor.
(v) Paragraph 7 (3) (j)It would be useful if the guidance provides benchmarks (eg, not on FATF’s black/grey lists) withrespect to “the quality and effectiveness of banking regulation and supervision” in order to alignthe due diligence expectation levels of various regulators.
(vi) Paragraph 14
When assessing the ML/FT risks associated with nested relationship, it should be noted that,depending on the law of the country (jurisdiction), certain information needed to make anassessment may not be provided. It should be specified that, under these circumstances,unavailability of information should not be a factor for assessing the relationship as “high-risk.”(2) “VIII. Risk management”(i) Paragraph 37○ It would be useful for the readers of the guidance if concrete examples are provided for therequirement: “business relationships should be formalised in written agreements that clearly
define the roles and responsibilities of the banking partners.”
Example: “provide KYC (due diligence/enhanced due diligence) information as requested, andreply within XX days to RFIs regarding payments.”○ Clarification of what is meant by “roles and responsibilities” should be provided. The exampleof “notice periods for terminating or limiting the business relationship”, though important, is
not “roles and responsibilities.”○ While the guidance requires that “business relationships should be formalised in writtenagreements”, some types of correspondent banking relationships are not based on bilateral
documentation. An example would be Relationship Management Application on SWIFT.
Given this, such business relationships should not necessary be limited to written agreements.
Furthermore, the guidance should not contradict or deny standard industry practice unless it is
the BCBS’s intention to do so. In this view, the guidance should specify that “it is notnecessarily required to formalise business relationships in written agreements provided that
there is already an established standard industry practice.” Even if the BCBS intends to makechanges that would contradict or deny standard industry practice, discussions with industry
bodies to avoid disruption to the global payments flow should preceed any such changes.

2(3) Box 1○ If information on respondent banks’ overall customer base is in fact available on KYC utilities,
further details of such information would be welcome. Nevertheless, the availability of suchdata should be confirmed before deciding to include such details. If such details are to be given
without confirming the availability, the guidance should clearly state that the guidance isapplicable only “if detailed information is available.”○ Although we understand the usefulness of KYC utilities, it should also be noted that they would
not serve all purposes and have limitations. For example, it is difficult to acquire information (i)to (iii) described in box 1 at least from the currently-used third-party databases. Furthermore, it
might become rather inefficient if more than one third-party databases exists.
○ “(iii) Whether certain high-risk categories (such as PEPs) are over-represented in the customer
base compared to the general population” is included as an example of “useful information on
respondent bank customer types.” However, this information may not be appropriate.
Assessment results will vary, as each entity has its own criteria for “high-risk” or“over-representation.” It is therefore not considered appropriate to gather this type of volatileinformation through KYC utilities.
○ “The analysis of the flow of messages” should be deleted as it is likely that such an analysis willoften not properly function as a KYC utility (e.g. only consists a partial flow of messages).
(This is not to deny the use for specific purposes such as transaction monitoring of therespondent bank.)(4) Box 2○ Paragraphs 21-22 are sufficient for the guidance regarding a correspondent bank’s assessment ofa respondent bank’s AML/CFT policies and procedures. Overly detailed guidance could betaken by some regulators that the use of such information sources are mandatory. If,
nonetheless, the BCBS determines to elaborate further on this requirement, the detailed
guidance should be viewed as an example because, in addition to the above-mentioned reason,
it may be difficult to acquire some information from the respondent bank (e.g. although theguidance refers to the use of internal audit reports as an example, some banks are considered totreat such reports as confidential information).
○ The examples in paragraph 21, “for example, receiving a description of the respondent bank’s
AML/CFT procedures and systems… ” may be overly descriptive, and includes unpracticalmeasures. Assessing the respondent bank’s AML/CFT procedures and systems can be replacedwith a more general description, such as, verifying the existence and the operational status ofmain AML policies, or appropriately checking the regular review status of the internal audit
function.

3(5) Box 3
A list of specific information to be included in the payment message, and meta-data requirementsthat needs to be taken into account would be helpful. Examples of information to be included in
payment messages are: originator and beneficiary full legal name; and address with countryname. Examples of meta-data considerations for “country name” are: full name; short name; and2 or 3 character code as set forth by ISO.
2.

Comment on Annex 4 “General guide to account opening”(1) “I. Introduction”(i) Paragraph 6bis.
There is value in using KYC utilities, when an appropriate threshold for usage is in place, and it
is used as a supporting tool for performing CDD. It is important to clearly note that CDD
requirements cannot be fulfilled by solely relying on the use of KYC utilities in order to avoid
misunderstanding.

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