Correspondent banking is considered a higher-risk banking sector because correspondent banking transactions:

Correspondent banking relationships are recognized as higher risk under FATF guidance primarily because transactions are cross-border and conducted on behalf of third-party customers.

In correspondent banking, a respondent bank may process transactions for customers that the correspondent bank does not have a direct relationship with. This reduces transparency and limits the correspondent’s ability to fully assess customer identity, beneficial ownership, and transaction purpose.

While correspondent transactions may involve high-risk jurisdictions, this is not always the case. They are not anonymous by design, and payment messaging standards often require significant information. However, the indirect customer relationship and cross-border nature introduce complexity, jurisdictional risk, and reliance on the respondent bank’s controls.

Therefore, third-party and cross-border exposure is the key driver of heightened risk.