Correspondent Bank

A correspondent bank acts as an agent between two financial institutions in different countries. When your bank in the UAE or Saudi Arabia needs to send funds to a recipient whose local bank has no direct relationship with your bank, the payment is routed through one or more correspondent banks that do. These intermediaries hold accounts for the originating bank - called nostro and vostro accounts - and execute the transfer, accept deposits, and handle currency exchange in the target market. Each correspondent in the chain can add a handling fee and apply its own FX conversion spread, which is why the amount that actually arrives can be lower than what was sent.\n\nThe framework governing correspondent banking is set at the international level by the Financial Action Task Force (FATF). FATF Recommendations require all financial institutions involved in correspondent relationships to identify and manage AML/CFT risks and to apply specific due diligence measures on a cross-border basis. In the GCC, each central bank - the Central Bank of the UAE (CBUAE), SAMA in Saudi Arabia, QCB in Qatar, CBB in Bahrain, CBK in Kuwait, and CBO in Oman - transposes these standards into national regulation and licenses the banks that participate in these networks.\n\nA practice called de-risking - where correspondent banks exit relationships with entire categories of respondent banks to avoid compliance costs - has reduced access to correspondent services for some corridors. FATF has explicitly stated that de-risking is not in line with its Recommendations and is a serious concern, because it pushes transactions into less regulated channels rather than eliminating risk.

For expats sending money home from the GCC, the correspondent banking chain is the main reason a transfer can take one to five business days and why the recipient amount may be lower than expected even when the sending provider advertises a low fee. Every correspondent bank in the chain is permitted to deduct its own fee and apply its own FX rate. A transfer from a UAE bank to a South or Southeast Asian or African bank may pass through two or more correspondents, each taking a slice. Always ask your sending bank for the full correspondent fee disclosure and compare the confirmed recipient amount - not just the send amount or the headline fee - before confirming the transaction.\n\nRegulated money-transfer operators licensed by the CBUAE, SAMA, QCB, CBB, CBK, or CBO often bypass parts of the traditional correspondent chain through bilateral agreements or real-time payment networks, which can result in fewer intermediary deductions on common GCC remittance corridors. However, FX risk remains: the rate locked at the moment you initiate the transfer can differ from the rate applied at settlement if processing is delayed, so check whether your provider offers a rate-lock guarantee and for how long it holds.