Nested Account
A nested account is a correspondent banking arrangement in which a respondent bank lets other banks or financial institutions use its account at a correspondent, giving them indirect access to a payment system the correspondent never agreed to serve them in.
Also called: nesting · nested correspondent banking · nested relationship · downstream correspondent banking · nested accounts
In the simple case, Bank A holds a dollar account with a US correspondent. Bank B, which cannot get a US account of its own, opens an account with Bank A and sends its customers' dollar payments through it. The US bank processes those payments but its customer is Bank A. Bank B, and Bank B's customers, are a further step removed.
Nesting is legal and often the only route to international payments for small banks and for institutions in markets hit by de-risking. The concern is visibility. The correspondent is relying on its respondent to have vetted institutions it cannot see, and shell banks, sanctioned parties and unlicensed money transmitters have used nested access for exactly that reason.
International guidance therefore requires correspondents to know whether a respondent offers downstream services, to whom, and with what controls. Undisclosed nesting is treated as a serious red flag. Payment firms meet the same issue when they offer accounts or payouts to other regulated or unregulated financial businesses, a model that banking partners often restrict or prohibit.
In practice
Whether a given arrangement counts as nesting, and whether it is permitted, is decided by the correspondent's policy and its regulator's expectations. Ask before onboarding another financial institution as a client.
Commonly confused with
| Term | How it differs |
|---|---|
| Payable-through account | A payable-through account lets the respondent's customers transact directly on the correspondent account. In nesting, another institution uses the respondent's account. |
See also
- Correspondent BankingCorrespondent banking is an arrangement in which one bank holds deposits for another bank and makes and receives payments on its behalf, normally so the second bank can reach a currency or a market where it has no branch or license of its own.
- Respondent BankA respondent bank is the bank that receives services in a correspondent banking relationship. It holds an account with a larger correspondent bank and uses it to make and receive payments in a currency or market it cannot reach on its own.
- De-riskingDe-risking is a bank exiting a whole category of customer, such as money services businesses, crypto firms or particular corridors, rather than assessing and pricing each relationship on its own facts. Accounts close because of what the customer is, not what the customer did.
- Vostro AccountA vostro account is the account a foreign bank holds with a domestic bank in the domestic currency, or “your account with us.” It is the same account a nostro describes, seen from the books of the bank that holds it.
- Enhanced Due DiligenceEnhanced due diligence, or EDD, is the additional scrutiny applied where money laundering risk is higher. In the UK and the EU it is mandatory in prescribed cases — politically exposed persons, high-risk countries, correspondent banking — as well as wherever a firm’s own risk assessment says the baseline is not enough.
- Know Your BusinessKnow Your Business, or KYB, is the verification of a corporate customer rather than an individual: that the entity legally exists, who owns and controls it, and what it actually does. It is the corporate counterpart to KYC, and the ownership chain is the hard part.