Wholesale Banking

In AML terms, wholesale banking covers the suite of products and services that commercial, corporate, and investment banks provide to:

Large corporates and multinationals
Financial institutions (including banks, broker‑dealers, EMIs, asset managers)
Governments, sovereign entities, and institutional investors such as hedge funds and private equity funds

The key AML‑relevant features are:

Large transaction sizes, sophisticated instruments, and cross‑border flows, including loans, trade finance, FX, derivatives, cash management, and capital markets activities.
Reliance on intermediated and nested relationships (e.g., correspondent banking, omnibus and payable‑through accounts), which make beneficial ownership, underlying customer identity, and transaction purpose more difficult to see.

From an AML perspective, wholesale banking is therefore a specific business segment where the institution’s customer‑due‑diligence (CDD), transaction monitoring, sanctions screening, and reporting frameworks must be tailored to institutional and corporate counterparties rather than retail customers.

Purpose and regulatory basis

Wholesale banking matters for AML because it sits at the centre of global capital flows, trade finance, and interbank payments, which criminals and terrorist financiers may exploit to move or disguise large volumes of funds with relatively few transactions.

Key objectives of AML control in wholesale banking are to:

Prevent misuse of correspondent and interbank relationships, particularly for third‑party and cross‑border payments.
Protect capital markets and trade finance structures from being used for layering or integration of illicit proceeds.
Ensure transparent, risk‑based relationships with corporates, financial institutions, and public sector entities.

Major regulatory foundations include:

FATF Recommendations, especially:
- Recommendation 10 (Customer due diligence), 13 (Correspondent banking), 16 (Wire transfers), and 18 (internal controls and foreign branches).
USA PATRIOT Act (notably sections on correspondent accounts for foreign banks and enhanced due diligence for foreign financial institutions), which require U.S. covered financial institutions to obtain information on foreign banks maintaining correspondent accounts and to implement risk‑based AML programs.
EU AML Directives (4AMLD, 5AMLD, 6AMLD and the evolving AMLR/AMLD package) which impose CDD, enhanced due diligence (EDD), and beneficial ownership requirements for corporate and institutional relationships, plus specific expectations for correspondent banking and complex products.
Wolfsberg Principles for Correspondent Banking and CBDDQ (Correspondent Banking Due Diligence Questionnaire), widely used to standardise information exchange and risk assessment between wholesale counterparties.
National AML/CFT and sanctions regimes (e.g., U.S. BSA/FinCEN rules, UK MLRs, EU sanctions, OFAC), which overlay product‑ and relationship‑specific expectations for wholesale markets.

When and how it applies

Wholesale banking AML obligations apply whenever a bank or regulated institution provides wholesale‑type products or services to institutional or corporate clients. Examples include:

Correspondent banking relationships
- A bank opening and operating accounts for a foreign respondent bank and processing cross‑border USD or EUR payments on its behalf.
- Payable‑through accounts where the respondent’s underlying customers can transact directly, requiring assurance that the respondent performs adequate CDD and can supply AML information on request.
Corporate and institutional lending
- Syndicated loans to multinationals or sovereigns.
- Structured/project finance for infrastructure, energy, or real estate.
- Risks include obscured beneficial ownership, use of SPVs in high‑risk jurisdictions, and corruption exposure.
Trade finance and supply‑chain finance
- Letters of credit, guarantees, receivables finance, and trade loans for importers/exporters.
- Exposure to trade‑based money laundering via mis‑invoicing, phantom shipments, and complex routing.
Capital markets and investment banking
- Underwriting or placing bonds and equity for large corporates or sovereigns.
- Prime brokerage for hedge funds and institutional investors.
- Custody, securities lending, and complex derivatives with potential for layering and market abuse.

Triggers that heighten AML focus in wholesale banking include:

High‑risk jurisdictions or sanctioned countries in the counterparty structure or payment chain.
Use of shell or near‑shell entities, opaque ownership, or complex SPV structures.
Nested correspondent relationships and high‑volume third‑party payments.
Politically exposed counterparties (public sector, state‑owned enterprises, sovereign wealth funds).

Types or variants of wholesale banking relevant to AML

While “wholesale banking” is an umbrella term, several sub‑segments have distinct AML profiles:

Interbank and correspondent banking
- Services between banks, including nostro/vostro accounts, clearing, and settlement.
- High inherent ML/TF risk due to indirect access by third‑party clients and cross‑border flows.
Corporate and commercial banking
- Relationship banking for large corporates, SMEs with complex structures, and multinationals.
- Risk factors include beneficial ownership opacity, sector risk (e.g., extractives, defence), and corruption/prior misconduct.
Capital markets and investment banking
- Underwriting, advisory, trading, prime brokerage, structured products, and securitisation.
- AML focus on source of funds, market abuse, and use of complex products for layering.
Treasury and markets / FX and derivatives
- Large FX, rates, and commodity derivatives with corporates and financials.
- Fast, high‑value transactions, often cross‑border, with potential for rapid movement and obfuscation of funds.
Custody and asset servicing
- Safekeeping, settlement, and administration of securities portfolios for institutional clients.
- Indirect exposure to underlying beneficial owners and complex fund structures.

Each variant requires tailored risk assessment, CDD depth, and monitoring scenarios aligned to product usage, geography, and counterparties.

Procedures and implementation

A robust AML framework for wholesale banking should embed the following steps:

Business‑wide and product‑level risk assessment
- Identify and document inherent risk across wholesale products (correspondent banking, trade finance, capital markets, etc.), delivery channels, geographies, and customer types.
- Assess mitigating controls and residual risk, and define risk appetite thresholds for each segment.
Customer acceptance and onboarding
- Implement risk‑based CDD/EDD for corporates and financial institutions, including:
  - Legal form, ownership and control (beneficial ownership, control persons).
  - Business model, source of wealth/funds, and anticipated activity.
  - Regulatory and licensing status for financial institution clients.
- For correspondent relationships, obtain Wolfsberg CBDDQ or equivalent information, including AML control frameworks, sanctions controls, and PEP/UBO screening approaches.
Risk rating and periodic review
- Assign customer risk ratings considering jurisdiction, product mix, ownership complexity, and behaviour.
- Set review frequencies and depth by risk rating, with event‑driven reviews on trigger events (e.g., adverse media, sanctions changes, unusual activity).
Transaction monitoring and screening
- Implement scenarios and models tailored to wholesale patterns, such as:
  - Rapid in/out high‑value payments with minimal apparent economic purpose.
  - Frequent payments involving high‑risk jurisdictions or sanctioned parties.
  - Trade anomalies (unusual goods descriptions, routing, over/under‑invoicing proxies).
- Screen counterparties, payment messages, and trade documents for sanctions and PEP exposure, leveraging structured message formats (e.g., ISO 20022) to capture complete originator/beneficiary data.
Escalation, investigation, and reporting
- Define tiered escalation paths for alerts and relationship concerns, involving relationship managers, second‑line AML, and senior management for high‑risk correspondent or sovereign relationships.
- File Suspicious Transaction/Activity Reports (STRs/SARs) to the national Financial Intelligence Unit (FIU) when suspicion is formed, while maintaining confidentiality and avoiding “tipping‑off”.
Governance, training, and assurance
- Provide specialised training for wholesale bankers, trade finance, markets, and correspondent banking teams on product‑specific risks.
- Ensure senior management oversight, with clear policies for entering, maintaining, or exiting high‑risk relationships, including shell‑bank prohibitions and de‑risking governance.
- Conduct internal audit and independent testing of wholesale AML controls.

Impact on customers and clients

From the customer perspective, wholesale banking AML measures result in:

Enhanced information and documentation requirements
- Corporates and financial institutions must provide legal documentation, organisational charts, beneficial ownership details, financials, licences, sanctions policies, and—in the case of correspondent banking—standardised certifications (e.g., USA PATRIOT Act certifications, Wolfsberg CBDDQ).
Rights and protections
- Clients have the right to fair treatment, appropriate data protection, and transparent explanation of general AML expectations, subject to confidentiality regarding specific monitoring and reporting processes.
- Personal and corporate data are processed under local data‑protection and banking‑secrecy frameworks (e.g., GDPR in the EU), with specific AML carve‑outs permitting retention and regulatory reporting.
Restrictions and possible derisking
- High‑risk customers (e.g., operating in sanctioned or high‑risk jurisdictions, opaque ownership structures) may face EDD, product limitations, reduced limits, or relationship termination where risk exceeds the bank’s appetite.
- Correspondent banks may exit relationships if respondents fail to meet AML expectations, provide adequate information, or remediate control weaknesses.

Duration, review, and resolution

Wholesale banking relationships tend to be long‑term, with AML obligations running throughout the lifecycle. Key elements include:

Onboarding and initial risk assessment
- Comprehensive CDD and approval (often including senior management approval for high‑risk correspondents and sovereigns).
Ongoing monitoring and periodic reviews
- Periodic reviews vary by risk level (e.g., annual for high‑risk financial institutions, 2–3 years for medium, longer for low‑risk).
- Ongoing monitoring of transactions, media, sanctions lists, and regulatory changes is continuous and integrated into daily operations.
Remediation and exit
- Where deficiencies or red flags arise (e.g., poor AML controls at a respondent bank, unresolved adverse media), the relationship may be subject to remediation plans, temporary restrictions, or eventual termination, escalated to senior management.
- Closing a relationship does not end the obligation to report suspicions about historical activity or to keep records for legally prescribed retention periods.

Reporting and compliance duties

Wholesale banking units carry significant reporting and compliance responsibilities, including:

Regulatory reporting
- Filing SARs/STRs, currency/threshold reports, and cross‑border reports in line with national regimes (e.g., SARs to FIUs; in the U.S., SARs and CTRs under BSA/FinCEN rules).
- Providing information to regulators and law‑enforcement agencies (e.g., via information requests and Section 314(b)‑type voluntary information sharing where applicable).
Documentation and record‑keeping
- Maintaining detailed records of CDD/EDD, risk assessments, approvals (including senior management approvals for high‑risk relationships), and ongoing monitoring for the regulatory retention period.
- Retaining transaction data, payment messages, trade documents, and internal analysis supporting decisions and suspicious activity determinations.
Penalties for non‑compliance
- Supervisors have imposed substantial monetary penalties, remediation programmes, and business restrictions on institutions that failed to apply adequate AML controls in wholesale and correspondent banking (e.g., weak CDD, failure to detect high‑risk flows, or processing transactions for sanctioned entities).
- Consequences may include enforcement actions, loss of access to key clearing currencies, reputational damage, and, in severe cases, criminal liability for individuals.

Wholesale banking connects with multiple AML concepts, including:

Correspondent Banking – core sub‑set of wholesale banking, with specific FATF Recommendation 13 and Wolfsberg Principles governing CDD and risk management.
Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) – foundational processes for onboarding and reviewing corporate and institutional clients.
Beneficial Ownership – critical for identifying the natural persons who ultimately own or control corporate clients and fund structures.
Politically Exposed Persons (PEPs) – particularly relevant for sovereigns, state‑owned enterprises, and public‑sector counterparties.
Wire Transfer and Message Standards (e.g., ISO 20022, SWIFT) – essential for ensuring complete originator/beneficiary information for cross‑border wholesale payments.
Jurisdiction Risk and Sanctions Compliance – central to evaluating cross‑border wholesale flows and correspondent networks.

Challenges and best practices

Wholesale banking AML poses distinctive challenges:

Opacity and complexity
- Multilayered corporate structures, SPVs, funds, and cross‑border arrangements complicate identification of beneficial owners, controllers, and true transaction purpose.
Data and information gaps
- Reliance on counterparties’ own AML controls, especially in correspondent banking, creates dependence on external data quality, certifications, and questionnaires.
De‑risking pressures
- Fears of regulatory penalties have led some banks to exit entire regions or sectors, prompting FATF to clarify that risk should be managed, not avoided indiscriminately.

Leading practices to address these issues include:

Adopting a granular risk‑based approach with differentiated controls by product, jurisdiction, and customer type, rather than blanket policies.
Using standardised tools such as Wolfsberg CBDDQ, publicly available AML certifications, and structured information requests to assess respondent banks and institutional clients.
Strengthening governance for high‑risk relationships, including clear escalation paths, senior management accountability, and documented decisions.
Investing in high‑quality data, analytics, and cross‑border information sharing to improve monitoring and reduce false positives.

Recent developments and trends

Recent trends shaping wholesale‑banking AML include:

Enhanced FATF and standard‑setter guidance
- FATF and the Basel Committee have refined guidance on risk‑based approaches to correspondent banking, emphasising proportionate CDD and discouraging indiscriminate de‑risking.
Expansion of cross‑border due diligence requirements
- USA PATRIOT Act‑driven expectations and EU AMLD/AMLR reforms push more detailed information exchange and beneficial ownership transparency for foreign banks and corporates, supported by national registries and cross‑border cooperation mechanisms.
Technology and data‑driven monitoring
- Increased use of AI/ML analytics, network analysis, and structured payment data (e.g., ISO 20022) in wholesale transaction monitoring enables better identification of unusual patterns in high‑volume, high‑value transactions.
- RegTech solutions and centralised KYC utilities facilitate more efficient CDD on institutional counterparties, reducing duplication and improving information quality.

These developments collectively push wholesale banking AML from static, document‑centric compliance towards dynamic, data‑driven, and risk‑sensitive frameworks.

Wholesale banking in AML is not merely a product label but a defined high‑risk business segment where large, complex corporate and institutional relationships intersect with global payment, trade, and capital‑markets infrastructures. Effective AML in this space demands robust risk assessments, tailored CDD/EDD, specialised transaction monitoring, and strong governance, anchored in FATF standards, national laws such as the USA PATRIOT Act, and industry frameworks like the Wolfsberg Principles. By treating wholesale banking as a distinct AML domain, financial institutions can better safeguard themselves and the wider financial system against large‑scale money laundering, terrorist financing, and sanctions evasion.

Wholesale Banking in Anti Money Laundering (AML)