What is a correspondent tie-up agreement in the money transfer operator world? Why is it important? And who issues this agreement?
Have you ever wondered what a correspondent tie-up agreement is? My name is Faisal Khan. I’m a banking and payment consultant and today I will explain the concept.
When two entities exchange money, there has to be an agreement in place. Each party is responsible for one half of that transfer. So that’s why hence you need the word ‘correspondent’. The other correspondent is going to be helping you in aid, in aiding you rather in transferring the money. From a legal point of view, regulators would like to see that every termination that you do or origination that you have, there has to be an agreement in place. A correspondent tie-up agreement is a legal contract between two licensed entities that tells them how the flow of funds will be done, who is responsible for, what the gamut of these commercials are going to be, and what the settlement types are going to be.
They also include things like, you know, if there is a dispute where the arbitration will take place they will tell you how much prefunding is required etc etc. But more importantly, it is for the regulators to see that there is a fixed format on how the payments will be done. It is not here, say they will not be making upgrades as they go along.
There has to be a service level agreement in the correspondent tie-up agreement, as well is a compliance programs, let’s say important essentials that are highlighted in the thing. Who will do KYC, when do we trigger, what are the limits, what are the slabs, how much prefunding is required, how much money can a person send during the day, during the week, during a 30 day period or a 90 day period. All of that comes under the gambit of a correspondent tie-up agreement.
I hope I was able to answer the question. If you have any other questions, feel free to ask in the comments below and I’ll be happy to answer. Till next time.
This page was last updated on December 10, 2019.