December 7, 2015
Comments on the Consultative Report: Correspondent Banking,issued by the Committee on Payments and Market Infrastructuresof the Bank of International Settlements
Japanese Bankers Association
We, the Japanese Bankers Association (“JBA”), would like to express our gratitude for thisopportunity to comment on the Consultative Report (the “Report”): Correspondent Banking,published by the Committee on Payments and Market Infrastructures (“CPMI”) of the Bank ofInternational Settlements (“BIS”) on October 6, 2015. We respectfully expect that the following
comments will contribute to your further discussion on this issue.
[General comments]
We welcome the BIS’s initiative to compile the Report as part of its initiatives to solve
correspondent banking issues common to banks in view of the importance of correspondent banking
and for the purposes of mitigating concerns connected with correspondent banking activities andAML/CFT compliance costs which continue to rise in recent years.
The four recommendations presented in the Report would, if appropriately implemented,
contribute to reducing AML/CFT compliance costs and clarifying administrative procedures.
Nevertheless, given that the four recommendations have both benefits and challenges as pointedout in the Report itself, a further analysis will be needed especially if it is the case that a detailed
fact-finding exercise is not completed yet or feedback from non-CPMI jurisdictions are not gatheredyet.
Further,whenindustrygroups,etc.

considertheimplementationofrespective

recommendations, it is preferable that the mutual relation will be given due regard in order to ensurethat consistent conclusions will be reached from respective considerations.
In addition, the CPMI is requested to take into account differences in business practices acrossjurisdictions and in characteristics across individual banks as well as to have prudent and broad
discussions with related parties in order to avoid additional costs and administrative burdens arisingfrom banks’ implementation of such recommendations.
[Four Recommendations]
We would like to comment on each of the four recommendations presented in the Report in thefollowing.

Recommendation on the use of KYC utilities
Although the use of KYC utilities is considered to be preferable, such use will be limited if theultimate responsibility for the use of KYC utilities lies with the correspondent banks even if KYC1utilities that store a set of up-to-date and accurate information exist. Given this, it would be useful inorder to promote the use of KYC utilities if, for example, regulators express their view that the KYC
utilities provided are an appropriate and reliable tool for KYC compliance purposes; specifically, afinancial institution is deemed to be adequately in compliance with KYC procedures with the use ofsuch KYC utilities.

Recommendation on the use of the LEI in correspondent banking
We fully understand the usefulness of the LEI in certain banking activities. Nevertheless, asdescribed in the Report, given current characteristics of the LEI (e.g. granted only to legal entities)
and its original purpose (i.e. it was not originally designed for AML/KYC purposes), the use of theLEI in correspondent banking would be limited and it is premature to include this in the agenda for adiscussion. The CPMI should consider the timing to initiate a discussion on issues related to the LEI,
including whether to use the LEI, based on the status of the use of the LEI going forward.

Recommendation on information-sharing initiatives
As indicated in the Report, the key to success of this initiative would be to what extent
information disclosure and sharing can be realized from the perspectives of data protection andprivacy. To this end, it would be preferable, among other things, to put in place a legal framework toenable information sharing and to consider establishing a repository.
In the case of KYCC (know your customers’ customers) with regard to customer information
disclosure, as it is recommended in the Report that “the FATF and AMLEG be invited to: (i) provide
additional clarity on due diligence recommendations for upstream banks, in particular to what extent
banks need to know their customers’ customers (KYCC),” the FATF and relevant regulators should
clarify requirements and develop legislation for customer information treatment, by taking into
account information available in banking practice.
Having said that, a hurdle for financial institutions to address KYCC would be high because it
is impractical to obtain approval for information disclosure from customers’ customers.

Recommendation on payment messages
It is not preferable, in light of business practices, to have a certain group to determine a certain
direction for payment messages used by financial institutions.
Both MT103 and MT202COV, referred to as an example in the Report, should serve adequately
as a payment message appropriate to AML/CFT compliance, if used properly. Therefore, it is not amatter of which is superior to the other. The use of such messages is determined by each bank basedon customers’ convenience and risk management requirements as well as in light of, among otherthings, comparison between practical preferences and actual costs.
In the case of MT202COV, its function depends on appropriate use. Therefore, relevant
regulators and SWIFT are requested to make effort to ensure appropriate use of MT202COV and toremove inappropriate use of MT202COV.

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