Correspondent and intermediary relationships in the investment sector - Thematic Review (2025-12-15)

Summary

This GFSC thematic review reports on onsite examinations of investment sector firms' handling of regulated intermediary and correspondent relationships under the Handbook on Countering Financial Crime (AML/CFT/CPF). It summarises findings from a review of 131 firms' data and onsite visits to 30 firms with the highest volumes of intermediary relationships, and sets out six areas where firms should improve their practices.

• Misclassification: Some firms wrongly applied the low risk intermediary relationship provisions (Handbook section 9.8) to relationships that did not qualify, including intermediaries outside Appendix C jurisdictions or not assessed as low risk.
• Risk assessments: Firms sometimes could not assign a low risk rating due to internal policy constraints, failed to document why adverse information was discounted, or did not record the intended purpose and nature of the relationship.
• Written confirmations: Some written confirmations obtained from regulated intermediaries did not contain all the attestations required by Handbook rule 9.47.
• Compliance monitoring: Intermediary relationships were not always tested within firms' compliance monitoring programmes, resulting in non-compliance with Handbook section 9.8.
• Central securities depositories: CSDs such as Euroclear and Clearstream were often categorised as intermediary relationships despite being unable to provide the written confirmations required by rule 9.47; they should instead be classified as correspondent relationships under section 8.6.
• Board risk understanding: Some business risk assessments made no reference to the inherent risks of regulated intermediaries.

The Commission imposed risk mitigation programmes on two firms as a result of the review and notes two others already subject to such programmes. It is updating the Handbook to address Moneyval's recommendations and will consider further guidance on intermediary and correspondent relationships, factoring in these findings and practices in other jurisdictions.

Key obligations

• Firms should review their intermediary relationships to ensure the intermediary relationship provisions (Handbook section 9.8) are only applied where the customer is correctly determined to be a regulated intermediary
• Firms should ensure relationship risk assessments consider all relevant risk factors and only classify relationships as intermediary relationships where risk is rated low
• Firms should ensure written confirmations obtained from regulated intermediaries fully meet the requirements of Handbook rule 9.47, and document how requirements are met where wording does not fully align
• Firms should ensure regulated intermediary files, policies and procedures are tested as part of the compliance monitoring programme, focusing on Handbook intermediary requirements
• Firms should reclassify central securities depositories (e.g. Euroclear, Clearstream) as correspondent relationships under Handbook section 8.6 rather than intermediary relationships, since they cannot provide rule 9.47 confirmations
• Firms should carry out and document suitable and sufficient business risk assessments for ML/TF/PF that specifically consider risks associated with regulated intermediaries where applicable

Applies to

Designated Administrators, Asset Managers, Designated Custodians, Investment Intermediaries, firms licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 2020