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One of the key operational components of any financial institution is its inter-banking relations—or, better said, their intermediary or correspondent bank accounts.

Intermediary and correspondent bank accounts (often called nostro or vostro accounts) allow banks or other financial intermediaries to connect to the international banking network by receiving and executing transactions not only in different currencies but with different settlement parties. Although setting up these accounts is a complex and time-consuming undertaking, it is an integral component of your bank’s treasury.

Most of our clients require consultation in how to set up treasury components such as a SWIFT, treasury conciliation, core banking systems, and correspondent or intermediary bank accounts.


Depending on your type of license and your governing jurisdictions, we can assist you by conducting pre-qualifications and providing an introduction to some of those intermediary and correspondent parties.

If you require intermediary and correspondent bank accounts, contact us for more information. We may be able to help you put those services in place. If you want to learn more about correspondent and intermediary banking, please continue to our guide below: “Intermediary and Correspondent Banking Explained.”

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A Comprehensive Guide to Everything There Is to Know about Intermediary and Correspondent Banking

What are intermediary or correspondent accounts?

An intermediary or correspondent bank is a bank that provides services on behalf of another financial institution, either similar or not-similar. It can facilitate wire transfers, conduct business transactions, accept deposits, perform due diligence, and process documents on behalf of another bank or financial institution.

Correspondent or intermediary bank accounts are most likely to be used by local or domestic banks servicing transactions that either originate or are to be completed in foreign countries. They act as a domestic bank’s agent abroad.

An intermediary or correspondent bank is a bank that has opened an account with your bank (the beneficiary/originating bank) and that acts on behalf of this beneficiary/originating bank as if that bank were to deliver services to those end clients. This is a bank account opened to and for another bank.

From a front-end (client) perspective, payments will reach the intermediary bank (account) before being credited to the final beneficiary account. (The final beneficiary is the person or entity who will receive the payment.) The final beneficiary is the final destination for the transfer.

From a back-end perspective, money is taken out of an account from a local bank (which is denominated in local currency) and an equivalent amount of money is put in the customer’s or supplier’s account at their local bank (denominated in a foreign currency) using the current FX exchange rate. The money from the buyer’s account goes into an internal account of your bank. The money to the customer or supplier comes from an account that the buyer’s local bank holds with a bank in the supplier’s country—the buyer’s bank’s correspondent or intermediary account at their intermediary or correspondent bank.

Usually, a standard protocol of communication is implemented for conciliation between those banks (i.e. SWIFT). This is also necessary for finding other connecting paths for execution of those payments. Although conciliation could be achieved using proprietary systems, it is customary to use a standard protocol for conciliation.

Both parties must apply all KYC/AML (Know Your Customer/Anti-Money Laundering) procedures and any other counter-terrorism financing procedures before “posting” any incoming/outgoing transactions. This makes transactions processed by third parties less prone to exposure.

What are nostro and vostro Accounts?

Any account held between correspondent banks and the banks to which they are providing services is referred to as a nostro or vostro account.

An account held by one bank for another is referred to by the holding bank as a nostro account. That same account is referred to as a vostro account by the counterparty bank.

Both banks in a correspondent relationship hold accounts for one another for the purpose of conciliation (tracking debits and credits) between them.

Why a bank needs intermediary or correspondent accounts

For any bank to service a client payment outside of its home jurisdiction (abroad), a correspondent or intermediary bank account is needed. In short, banks need those accounts to make and receive payments internationally.

Domestic banks that are connected to a central execution network (such as a central bank) employ correspondent banks to connect to international settlement networks.

For instance, if Party A (located in Australia) wants to pay to Party B (located in the E.U.), the domestic bank executing that payment in Australia will not be able to process or issue such payment using its domestic payment network. To complete such a transfer, the bank will require another bank with access to the destination market to deliver such payment locally (in the destination). An account between both banks is established, allowing for ease of conciliation at the end of each business day.

Banks everywhere must overcome their borders. This is the limited access to foreign financial markets that are off limits to their own regulatory/operational environment.

There are only two ways to overcome such limitations.

1. Registering locally in the destination under the applicable regulatory framework.

2. Having a correspondent bank account set up locally.

As you can imagine, it’s much easier for these institutions to open a local account that grants them access to that banking system than to open a whole new bank (and undergo its respective licensing process locally) in the destination jurisdiction.

Correspondent banks can act as intermediaries (or the other way around) between banks in different countries or as agents to process local transactions for clients when they are traveling abroad. At the local level, correspondent and intermediary banks can accept deposits, process documentation, and serve as transfer agents for funds. The capability to execute these services relieves domestic banks of the need to establish a physical presence in foreign countries, which is extremely complex from a regulatory standpoint.

What is the difference between intermediary and correspondent accounts?

The difference between correspondent and intermediary banks depends on the jurisdiction. However, from an operational standpoint, both are the same.

Both serve as third-party banks that coordinate with beneficiary banks to facilitate international fund transfers and transaction settlements. In some jurisdictions the denomination of a correspondent bank is different from that of intermediary banks,

For instance, in Australia or within the E.U., banks that deal in international transfers are called intermediary banks. However, most jurisdictions make no distinction between intermediary and correspondent banks for the purposes of legislation.

In other parts of the world, such as the United States, there is sometimes a delineation between specific roles for intermediary and correspondent banks.

The most commonly cited difference between the two is that correspondent banks handle transactions involving more than one currency. For example, if the transferring party is dealing in U.S. dollars (USD) and the receiving party is in Germany, a correspondent bank covers all transactions from USD into Euro (EUR).

Another corresponding bank in Germany deals in foreign currency for the recipient. Most of the time (though not always), correspondent banks are located in the country where the two currencies are domestic.

Intermediary banks forward money for foreign transactions. However, these transactions don’t involve multiple currencies. Most of these cases involve an originating bank that is too small to deal in foreign transfers. Therefore, the assistance of an intermediary bank is required.

Although each jurisdiction is different and denominations for those banks often change, both serve the same purpose (though with limitations, as explained). In all cases, the intermediary and correspondent banks will act as a representation entity for a third-party bank generally located abroad.

Correspondent and intermediary banking AML/KYCC:

One of the main advantages we see when using a correspondent or intermediary bank is that you will gain access to a broader set of AML and KYC compliance procedures but without the local implementation cost. This is because the local intermediary or correspondent bank will perform those checks locally, as established by the applicable regulatory framework and common local banking practices. This automatically benefits your bank or financial institution by having a stricter double-check policy on anything that you are onboarding or paying.

In most cases, you will need to ask your clients to comply with any relevant AML/KYC requirements themselves before you onboard them. With an existing client base, you may need to introduce such requirements gradually.

How does one transfer money using a correspondent or intermediary bank?

Cross-border wire transfers often occur between banks that do not have a pre-established financial relationship. In such cases, a correspondent bank must act as an intermediary for any transaction related to such payments.

For example, a bank in Sydney that has received instructions to wire funds to a bank in Malaysia cannot wire those funds directly without an executing contract with the receiving bank.

Knowing that there is no working relationship with the destination bank, the originating bank can search the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network for a correspondent bank that has arrangements with both banks. Most international wire transfers are executed using the SWIFT network.

Upon finding a correspondent or intermediary bank that has arrangements with both sides of the transfer, the originating bank sends the transferred funds to its nostro account held at the correspondent bank. The correspondent bank deducts its transfer fee and transfers the funds to the receiving bank in Malaysia.

In a transaction like this, the correspondent bank is key, as it adds value by alleviating the need for the domestic bank to establish a registered office abroad. It also lessens the work involved in setting up direct arrangements with other financial institutions at the destination.

An intermediary or correspondent bank account is an account established by banking institutions to receive deposits from, make payments on behalf of, or handle any financial transactions for a third-party financial institution. Intermediary or correspondent accounts are established through bilateral agreements between the two banks in observance of both local regulatory frameworks and specific operational limitations.

Commonly, correspondent and intermediary accounts allow those banks to pay and receive local currency. These accounts allow them to pay others from the account or receive money from others into that account.

Your bank or financial institution can benefit from this by offering various services to your end customers, such as foreign exchange and foreign currency delivery denominated transactions, despite your not having a bank license for the foreign country in that country’s currency.

Noteworthy restrictions for correspondent or intermediary banks

Over the past few years we have seen a decline in services provided by banks that are regulated by or have a relationship with the U.S.

This has driven most banks to stop or restrict their USD transactions and services, In our opinion, if this continues, it could subject the USD to various systemic risks.

Most banks are now adopting the Euro or other major currencies as their main base currency, and are actively closing out their USD accounts, limiting payments into and out of the U.S. market.

Lately, smaller and mid-sized banks are using the Euro as their main transactional currency. If you need an account in USD, you may want to think about licensing domestically in the U.S.


Contact us if you currently own or control a licensed financial institution that requires additional correspondent or intermediary bank relations.

If you are licensing a new bank and need your prospective bank to include correspondent or intermediary banking services, reach out to us. Depending on your license type and jurisdiction, we might be able to help you.

Financial Licensing Advisors has relationships with market players all over the world, including intermediary and correspondent banks and various financial intermediaries that specialize in delivering correspondent and intermediary banking services to the international banking sector.

Banks and intermediaries located in Europe, the Caribbean, and Asia could deliver services for your financial institution based on your needs and with transparent integration with your KYC and AML policies

Please note that intermediary and correspondent account setup often involves dealing with third-party specialists relative to compliance of the counterparty.

If you require intermediary and correspondent bank accounts, contact us for more information about how we can help you put those services in place.

Let us help with your financial and licensing needs.

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