Cost-management in correspondent banking relationships

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Cost-management is essential and highly specific sphere, which requires applying adequate decision- making approach as a part of the bank’s internal value creation process. Correspondent banking is a dynamically growing area of management and controlling methods applied in banks on the one hand and high risk financial segment of the regulators’ measures and expectations around the world on the other. The purpose of this research is to outline the main challenges for cost-management development in correspondent banking relationships (CBRs) around the world with recommendations for Ukraine. The paper explains the key reasons and essential components of cost-management system for managing risks and costs in CBRs based on the analytical results of transactions volume, comparing drivers of restriction of CBRs, rapidly growing number of different types of compliance and operational costs. As a result, the study highlights the cost-cutting measures based on digital assets solutions and blockchain technologies that can help banks to eliminate and lower costs of customer on-boarding, due diligence and money laundering prevention, foreign exchange and currency hedging, treasury and payment operations, liquidity and capital raising.

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    • Figure 1. Dynamics of penalties payments by banks during 2009–2016 financial years
    • Figure 2. Trends of AML compliance costs in CBRs during 2009-2016 financial years
    • Figure 3. Average annual costs of banks’ AML Compliance operations by Asia in 2016 (USD, million)
    • Figure 4. Comparing expected change in banks’ AML compliance costs in 2016, %
    • Figure 5. Breakdown of compliance costs by functions (banks in Asia region, %)
    • Figure 6. Essential Benefits of using blockchain technology in CBRs
    • Table 1. Types of cost and risk by obligatory stages of CBRs
    • Table 2. Comparison of the drivers of termination or restriction of foreign correspondent banking services
    • Table 3. Anticipated annual AML cost savings in CBRs using Fintech models