How new compliance architectures can restore trust and transparency to the correspondent banking business and create revenue opportunities.
Correspondent banking is shrinking just as global cross‑border payments reach a historic scale, creating a structural paradox. Banks are exiting corridors not because demand is falling, but because the cost and complexity of mitigating financial crime risks have become unsustainable.
Emerging innovations that support new compliance architectures are beginning to reshape the options available to banks. The real question is no longer whether correspondent banking can survive, but whether institutions are prepared to fundamentally redesign how transparency and trust are built, enforced, and scaled in global payments, to seize a share of the growing cross-border payment market.
Correspondent banking sits at the heart of global commerce, enabling the movement of value across borders, currencies, and financial systems. Yet over the past decade, this essential infrastructure has come under heavy pressure. Heightened regulatory scrutiny, complex sanctions regimes and an increasingly volatile geopolitical environment have pushed many institutions offering transaction and correspondent banking services to “de‑risk”, i.e. rationalise their networks and exit higher‑risk corridors. The result has been a reduction in correspondent relationships globally, leading to operational bottlenecks, higher costs, and reduced access in certain markets.
This reduction is taking place despite continued expansion in cross‑border payment activity. According to FXC Intelligence’s[1] latest analysis, the global cross‑border market reached $208 trillion in total flows in 2025, spanning wholesale and retail payments. Retail flows alone accounted for $44 trillion and are forecast to grow to $67.3 trillion by 2033. Meanwhile, business‑to‑business (B2B) cross‑border activity had a market size of $34.8 trillion in 2025, projected to increase 47% by 2033.
This creates a paradox: demand for cross‑border services is accelerating, yet the network underpinning them is becoming narrower and more costly to operate. The question for the industry is whether financial crime risks (AML, sanctions, fraud, PEP exposure) will remain a structural obstacle to growth, or whether modern technologies can support effective compliance operations, mitigate risks and restore confidence in correspondent banking as a scalable model.
Drawing on our experience advising international banks across the UK and EU, we have developed a structured vision for transforming the correspondent banking operating model through a compliance‑by‑design approach that strengthens control effectiveness, reduces customer friction, and enables sustainable growth.
Traditional financial crime controls are no longer fit for purpose
The pressures facing the correspondent banking business are well‑documented. Unlike domestic payments, correspondent payments are inherently opaque: institutions must execute transactions on behalf of clients they do not directly onboard, often spanning multiple jurisdictions, regulatory environments, and intermediaries. The lack of visibility into end beneficiaries, combined with other complex features such as nested relationships and payable‑through accounts, materially increases money‑laundering and sanctions risks.
In prior publications[2], we have outlined the specific regulatory expectations for correspondent banking, including the need for a risk‑based approach to enhanced due diligence (EDD), ongoing monitoring of respondent activity, and the maintenance of robust policies, procedures, and governance frameworks. Recent regulatory developments have materially strengthened the requirements.
Most notably, the new EU AML Regulation (EU) 2024/1624[3] introduces explicit enhanced due diligence obligations for correspondent banking relationships, particularly where respondent institutions operate in higher‑risk jurisdictions or provide services involving crypto‑asset service providers (CASPs). The regulation also prohibits the establishment or continuation of correspondent banking relationships with shell institutions. This aligns with existing FATF expectations and reinforces the need for a deeper assessment of the respondent’s ownership, control, and operations.
Additionally, the FCA, in its latest Payments Regulatory Priorities (March 2026)[4], emphasises the need for firms to strengthen financial crime controls, improve governance, and ensure effective systems and oversight to mitigate risks, including money laundering and fraud.
The FCA highlights persistent gaps across firms’ AML frameworks, stressing the importance of better data‑sharing, enhanced operational resilience, and the development of modernised payments regulation covering stablecoins, open banking, and tokenised payment instruments, directly impacting correspondent banking activities.
These updated obligations raise the expectations for the visibility requirements into respondent activity, transaction patterns, and the effectiveness of their own AML/CFT controls.
This poses financial institutions several structural challenges:
- Fragmented, siloed financial crime operations: Correspondent banks frequently manage KYC, sanctions screening, transaction monitoring, and SAR reporting across disparate systems. Backlogs are common, and manual reviews remain resource‑intensive.
- Escalating compliance cost pressures: Increased sanctions regimes, complex geopolitical exposures, and growing volumes of alerts have significantly raised the cost‑to‑serve. With take rates on many corridors declining, the economics of correspondent banking are tightening further.
- Regulatory inconsistency across jurisdictions: Divergent interpretations of FATF guidance, local privacy constraints and differing sanctions regimes create added friction. Banks often choose to exit relationships rather than maintain increasingly burdensome due diligence obligations.
- Lack of global interoperability and data quality: The absence of harmonised data standards and payment messaging structures directly impacts monitoring effectiveness, contributing to delays, false positives and payment holds.
It is not surprising to see that those traditional controls, such as manual case management, periodic file reviews, and static rules-based monitoring, are no longer adequate for the speed, scale, and complexity of modern cross‑border payments.
A new architecture for safe and scalable cross‑border payments
A new wave of technological, regulatory and infrastructure developments now offers a path toward reconciling growth ambitions with stronger financial crime control. Several innovations stand out and provide opportunities to grow correspondent banking services.
Stablecoins: a prime example of why strong regulation is critical for Banks
Stablecoins are already widely used in cross‑border transactions, particularly in B2B and retail segments. But FATF’s 2026 report[5] highlights serious risks:
- Over 250 stablecoins in circulation with $300bn+ market cap
- 84% of illicit virtual‑asset transactions used stablecoins in 2025.
- High exposure to P2P unhosted wallets, cross‑chain laundering, and cybercrime (e.g. DPRK ransomware flows)
There are several fincrime mitigation technologies and use cases emerging:
- Allow‑listing/deny‑listing of addresses at the smart‑contract layer
- Issuer capabilities to freeze or burn tokens
- Mandatory customer due diligence at the redemption stage
- Cross‑chain analytics and risk scoring
- Real‑time sharing of risk signals across networks
As the UK develops its regulatory framework for GBP‑backed stablecoins, banks can leverage regulated stablecoins as a safe settlement asset once compliance‑enabling technologies are in place.
The Bank of England recently issued a consultation[6] on sterling‑denominated systemic stablecoins, setting out prudential requirements, backing‑asset composition, operational resilience expectations, and cross‑border risk considerations. While holding limits and interoperability questions remain, the UK’s approach shows increasing alignment with global regulatory efforts (including MiCA in the EU and US proposals). As the framework matures, regulated stablecoin models could offer compliant, low‑volatility cross‑border settlement options.
For correspondent banking, regulated stablecoins could unlock cost‑efficient, low‑latency settlement, but only if banks integrate the necessary risk controls that address FATF’s findings and align with the regulatory framework.
Tokenisation of deposits and government securities: when digitalisation allows compliance-by-design and safer liquidity for lower-volume corridors.
Tokenised deposits and tokenised government securities together illustrate how digital asset architectures can embed financial crime controls directly into the operational model of correspondent banking.
Tokenised deposits sit within the regulated banking perimeter and integrate with existing compliance frameworks. Their core financial‑crime advantage lies in end‑to‑end traceability and shared visibility: when multiple institutions transact using a common token framework, transaction data, ownership, and control signals are synchronised in near-real-time across correspondents and respondents. This materially reduces the multi‑institution opacity that criminals exploit, while enabling programmable compliance controls (embedded sanctions checks, jurisdictional restrictions, among others) at the point of transaction. Event‑driven reporting and structured data flows further strengthen auditability and improve alignment with KYC and CDD obligations, as demonstrated by initiatives such as the BIS’s Project Agora[7] and Swift’s[8] shared ledger experiments, where compliance logic and reconciliation are built into the payment infrastructure itself.
Tokenised government securities, including the UK’s planned DIGIT[9] programme for digital gilts, complement this model by addressing one of the most persistent drivers of correspondent banking derisking: inefficient and risky liquidity management in lower‑volume corridors.
From a financial crime perspective, it enhances the ability to monitor the sources of funds and cross-border settlement chains. From a business perspective, improved collateral efficiency can make previously unviable corridors economically sustainable, reducing the incentive to exit entire markets due to thin volumes or high operational costs.
Implementation Risk: regulatory alignment, legal enforceability, interoperable platforms, and robust data governance are essential to avoid tokenisation, which could create new financial crime risks and operational fragmentation at scale.
ISO 20022 as an enabler of data‑driven compliance
ISO 20022 introduces structured, standardised, and enriched payment data across borders, supporting the shift toward a data‑driven compliance model. By improving the quality, consistency and granularity of payment information, ISO 20022 can directly enhance the effectiveness of key financial crime controls. Sanctions screening can be executed with greater precision, reducing false positives driven by poor data quality, while transaction monitoring benefits from richer information across counterparties, corridors, and products.
Over time, the increased visibility of cross‑border payment patterns also supports a more dynamic form of perpetual KYC, strengthening customer risk assessments beyond static, periodic reviews.
Crucially, ISO 20022 provides the data foundation required to scale advanced analytics and AI‑based typology detection, enabling financial institutions to identify complex and non‑obvious risk patterns that traditional rules‑based systems struggle to detect.
As outlined in our previous analysis[10], this represents a meaningful upgrade in financial crime risk management capability and is a prerequisite for scaling correspondent banking operations in a controlled and cost‑effective manner.
Attention Point: Realising the full compliance uplift from ISO 20022 depends on consistent implementation across correspondent networks, strong data governance, and the ability of financial crime systems and operating models to consume and act on enriched data effectively.
Global single shared platform (GSSP) uses compliance by design
The Global Single Shared Platform proposed by The Payments Association[11] represents a structural shift in how compliance can be embedded directly into cross‑border payment execution. By checking sanctions, AML and CTF rules before transactions are settled, and enabling continuous cross‑jurisdictional monitoring on a shared ledger, the model allows:
- Reduces the opacity and time‑lag that those financial criminals exploit;
- Strengthen transparency between correspondents and respondents through shared “source of truth” and regulatory‑aligned corridor routing;
- Reduced fragmentation, lowering the incentive to de‑risk entire corridors.
Benefit realisation depends on strong governance, consistent participation standards, and regulatory alignment across jurisdictions. Adoption requires clear accountability and interoperability between participants.
AI for cross‑border financial crime detection
AI models can analyse vast payment networks and identify complex typologies that rule-based systems cannot detect. In correspondent banking, where data availability (or lack thereof) and indirect relationships create inherent blind spots, AI is particularly powerful for:
- Identifying anomalous payment behaviour, including unusual corridor activity
- Risk scoring of correspondent and respondent relationships using behavioural data
- Detecting non‑obvious patterns across large networks
- Learning from typologies and adapting to evolving risks
- Prioritising the highest‑risk alerts
- Reduce false positives and operational backlogs
When paired with ISO 20022 data and, eventually, tokenised transaction architectures, AI provides the foundation for a more proactive, intelligence‑driven compliance framework at the correspondent‑network level.
These benefits can only materialise if key operational constraints are addressed: robust data quality, accuracy, and availability are required to train AI models and machine learning algorithms. A critical prerequisite for effective AI adoption in this space is an initial phase of collecting standardised, anonymised transaction data and blending it with accurate, relevant synthetic data to build training models. This is critical to ensure reliability of any AI-based technology to support correspondent banking activities. This will require clear, robust AI governance and regulatory frameworks and can be accelerated through industry-wide collaboration and data-sharing.
Recommended approach
We believe that banks seeking to implement more operationally and cost‑effective controls for their correspondent banking operations should treat compliance architecture as a strategic enabler rather than a constraint. This requires aligning risk, compliance, payments capabilities, and front-office operations through a structured, compliance‑by‑design approach that ensures business readiness.
Projective Group’s risk and compliance practice has developed a comprehensive financial crime health assessment framework to initiate this journey, enabling institutions to identify gaps across their financial crime capabilities and to prioritise targeted tactical and strategic actions toward a clearly defined target state.
Conclusion: Rebalancing risk and growth
Cross‑border payments are poised for continued expansion, driven by B2B flows, digital services, and global e‑commerce. Yet correspondent banking cannot sustain this growth if financial crime costs continue to rise faster than revenues.
The path forward is not de‑risking but transforming the architecture around correspondent banking. Tokenisation, unified ledgers, stablecoin, GSSP‑style shared platforms, ISO 20022 and AI collectively point toward a more transparent, data‑rich, real‑time model for managing financial crime.
Without embracing these innovations, firms risk lagging behind competitors that are modernising faster, offering safer, more transparent, and more efficient cross‑border services. The consequence is not only weaker financial crime controls, but also declining customer retention, reduced scalability and missed opportunities in a growing global payments market.
With deep expertise across risk & compliance, transformation, payments, and data, our ProjectiveGroup teams support institutions across these emerging areas by shaping their compliance functions and correspondent banking businesses to meet evolving financial crime and regulatory challenges. Contact us today to find out more about how we can support you.
