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Ask the Ambassador

featuring Ambassador Joel Nagel

Nested Correspondent Banking Accounts

written by Joel Nagel July 27, 2017

Question: “What is a Nested Correspondent Banking Account?”

Ambassador Nagel:

A nested correspondent banking account is one where a service provider sets up a master correspondent banking account at a large bank. Then the provider brings in smaller offshore banks under his master account.

A nested correspondent banking account allows smaller banks to deal with providers experienced in their industry rather than with a larger bank that probably has no time for this business.

The service provider for the nested correspondent banking account might be a mid-tier bank, financial technology company, or a “money service company.”

A money service company is a legal catch-all term used by financial regulators to define any businesses that transmits or converts money. A money service company is a non-bank financial services provider.

The key to a service provider being approved for a nested correspondent banking account is a high-tech compliance program. One capable of knowing the client of the sub-bank plus tracing the source of all inbound wires and testing the receiver of all outbound wires.

These fintech nested correspondent bank account providers have compliance systems that analyze the clients of your bank’s clients, or provide KYCC.

Know your client’s client has become the buzzword in 2017 as banks seek to reduce risk and automate compliance. For more, see: correspondent banks powered by machine learning.

Filling The Gap

Nested correspondent account providers are filling a gap in the industry. Large banks stopped providing correspondent services to small international banks because of the high costs of compliance and the risk of fines.

Fintech companies are solving both of these issues by developing high-tech software and systems that manage compliance risks far more efficiently than the legacy systems at large banks. And they’re willing to put their money on the line… to bet on their IT, as it were.

That is to say, nested correspondent banking account providers must put up a sizable bond. In most cases, the provider will put up millions of dollars to secure the account.

This cash is an insurance policy for the correspondent bank. If they get hit with a fine, it’s coming out of the provider’s reserve fund.

Before machine learning and big data, the risk of loss was too great. No bank would risk a million dollar fine to provide services to a correspondent bank that generates $50,000 a year in profit.

Today, this risk of loss is reduced because of the provider’s compliance programs. Also, the cost of compliance is reduced through automation.

I hope you’ve found this article on nested correspondent accounts to be helpful. For more information on my services, see www.NagelLaw.com or call me at (412) 749-0500. I’ve been assisting international banks for over 15 years and can work with you to secure a correspondent account.

Read Ambassador Nagel’s other reports:

WHAT ARE THE WAYS TO GO ABOUT GETTING A SECOND PASSPORT AND WHY IS A SECOND PASSPORT GOOD TO HAVE?

THIS IS HOW TO GAIN ACCESS TO A SECOND CITIZENSHIP

HOW IS A DYNASTY TRUST THE PERFECT GIFT FOR MY FAMILY?

THE MYTHS AND REALITY OF ESTABLISHING AN OFFSHORE TRUST. IS ONE RIGHT FOR YOU?

HERE’S HOW TO MAXIMIZE PRIVACY IN YOUR OFFSHORE TRANSACTIONS

GET TO THE HEART OF ACTIVE OFFSHORE BUSINESS TAXATION

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