Glossary term
Nested Accounts
Subject: Financial Crime, Customer Due Diligence and Correspondent Banking
Also known as: Downstream correspondent clearing, Nested correspondent relationships
Nested accounts are a correspondent arrangement in which a respondent bank lets other banks or financial firms use its account at the correspondent, so the correspondent cannot see the end users.
Explanation
In ordinary correspondent banking, Bank A holds an account for Bank B. In a nested arrangement, Bank B then allows its own clients, often smaller foreign banks or money transfer firms, to route payments through that account. The first bank can see Bank B but not the clients behind it, so it may be handling transactions for parties it has never reviewed. Risk comes from that blind spot: customers in sanctioned or high-risk countries, or shell banks, could gain indirect access. Firms deal with it by asking respondents in due diligence whether they offer nested services, who the downstream users are and how they are checked, and by setting limits or banning the practice. Transaction patterns and originator information help reveal it. Examiners look for a clear answer on whether nesting is allowed, since an unexamined downstream user can pull the bank into a sanctions breach.
Example
A correspondent bank holds an account for a regional bank abroad. Monitoring shows rising payments for names that do not match the regional bank's profile. Enquiry reveals the regional bank lets two small exchange houses in a neighbouring country send payments through the account. One cannot be properly identified, so the correspondent requires the arrangement to stop.
Not to be confused with
- Payable-Through Account (PTA)
- A PTA gives the respondent's clients direct access to the account. Nested use keeps them behind the respondent, out of the correspondent's sight.