Correspondent account (English «correspondent account») is an account that consists of 20 digits and is opened by a bank or other financial institution for the purpose of accounting for its own property, reflecting settlements (which were made by the organization) or to participate in the formation of reserve savings banking system.
1. What is a correspondent account in simple terms
In the process of filling out the settlement and payment documentation, you will definitely have to indicate the correspondent and current account. They have significant differences, so you should learn to distinguish them from each other. Also, do not confuse a correspondent account with a correspondent account, these are 2 different concepts.
The funds on the correspondent account are protected by the Central Bank of Russia. With the help of such an account, banking institutions or other financial institutions can fulfill the requirements of customers in a timely manner. The account number must be entered in the payment order. This is what is necessary for the timely transfer of funds from the account of one bank to another.
Since different banking institutions are chosen for the operation of the company, correspondent accounts must be used to transfer funds from one organization to another. Their entrepreneurs open in a territorial office of the Central Bank of the Russian Federation convenient for them. If we are talking about a long-term partnership, it is better to establish a direct relationship. Thus, financial institutions will make transfers much faster.
2. Why open a correspondent account
A correspondent account (CA) is a requisite that banks and other financial institutions open with the Central Bank of Russia, and it is this account that is used as the basis for mutual settlements in the conditions of the banking services market. A correspondent account is opened by an organization with the Central Bank or with one of the other commercial creditors.
This account will be assigned to the company at the time of its registration in order to be able to make mutual settlements with the Central Bank of the Russian Federation and other banking institutions. First, the money goes to the correspondent account of the bank, after which the funds are redirected by specialists to the necessary accountants.
Through a correspondent account, you can make the following types of financial transactions:
- mutual settlements with off-budget funds;
- interbank loans;
- settlement and cash transactions between counterparties;
- sale or acquisition of assets;
- other mutual settlements through interaction with the Central Bank.
In order for the funds to be debited, the company must agree to this. This applies to all transactions, regardless of the amount of the transfer. The closure of the account is initiated by the bank, the owner of the account, in the event of the liquidation of the credit institution, or its work is terminated due to gross violations of the laws of the Russian Federation in force.
3. Varieties of correspondent accounts
Commercial companies can have deposits in foreign and Russian banks, while keeping funds in foreign currency or rubles. In this regard, there are several 3 types of correspondent accounts:
- Vostro. It is used by foreign citizens who conduct business activities on the territory of the Russian Federation. The currency, in this case, is the ruble or the national currency of the account holder;
- Nostro. Provided for transactions between foreign counterparties and Russian clients;
- Loro. Through this account, the interaction of banking operations is carried out. In this case, the respondent must file an application with the correspondent, who, in turn, opens a correspondent account for the respondent’s banking institution on the basis of a special agreement.
If we are talking about the need to conduct internal operations, this account is a mandatory requisite, and it will be indicated in the documents. Regarding external operations, they can be issued without it.
4. How to distinguish a correspondent account from others if the number of characters is the same
The settlement and correspondent accounts have the same number of digits, which are selected according to a general principle. To distinguish these accounts from each other, you must consider the following:
- in the current account (RS), the last digit is selected individually, and in the correspondent account, they correspond to the numbers from 7 to 9 of the bank identifier;
- in the COP, the first numbers are always “301”, and for the settlement one they may be different depending on what kind of activity the recipient organization conducts. For example, the most common first numbers are «407» and «408», the latter is used for individuals;
- if we are talking about conducting a transaction within the same banking institution, even though the branches may be different, only the current account will be indicated on the receipt.
Regarding the execution of payment orders, for the transfer between financial institutions, both accounts can be indicated here.
5. What you need to open a correspondent account
To open a CU in the Central Bank of the Russian Federation, a financial institution must provide the following documents:
- application for opening an account;
- copies of constituent documents with the seal of a notary;
- letter from the Bank of Russia. It must state that the applicants are indeed the head and chief accountant of a financial institution;
- a copy of the license allowing to carry out financial transactions (certified by a notary);
- certificate that the company is registered with the tax service;
- notice to the FSS insured;
- certificate of registration with the MHIF and the PFR;
- a card with sample signatures of the chief accountant, head or other persons authorized by the Central Bank of the Russian Federation;
- a notarized copy of a letter from Rosreestr with a list of statistics codes that belong to the company;
- a letter from the registration authority, as well as a copy of an extract from the savings account, which is opened on a temporary basis. Here you can see the transfer of funds to the correspondent account.
6. What information is in the contract
When the composition of correspondent obligations is determined, it is necessary to conclude an appropriate agreement. The bank’s rights will be displayed here:
- on the basis of instructions from both banking institutions, operations are carried out, but at the same time, with the obligatory observance of the established limits;
- the ability to exchange control documents. First of all, this concerns sample signature cards of persons entitled to sign bank documentation and contact the bank with relevant questions, as well as electronic keys used by bank customers;
- the ability to carry out such operations as the collection of documents related to a letter of credit, the issuance or acceptance of guarantees, acceptance of expenses and payment of interest.
More recently, banks have hardly entered into such agreements. They played a purely technical role in carrying out such operations. But, at the moment, this is one of the tools that allows you to minimize risks and get additional profit, including through the rapid transfer of information about the movement of funds on correspondent accounts, as well as the complete exclusion or reduction of commission rates, regardless of the type of operation.
Correspondent agreements gained popularity due to the fact that banks themselves began to act as lenders and borrowers. In addition, they themselves often use various banking services. In the process of concluding such an agreement, banks are divided into 2 types — a correspondent bank (not able to open an account) and a respondent bank (with the ability to open an account).
7. Correspondent account operations
A correspondent account is used to carry out such operations as:
- buying assets (such as bonds or stocks);
- payments to non-budgetary organizations or to the budget;
- settlement and cash services;
- transfers with interbank loans and deposits.
Transfers made by counterparties are received on the correspondent account of a banking institution and then, after a thorough check, the funds will be distributed to client accounts or internal bank accounts. It is worth considering that if a bank client sends funds and at the same time, difficulties arise, the banking institution distributes payments to internal accounts.
Also, clients should be prepared for the following situations:
- money can be debited only if an order is received from the owner of this account or when the bank receives the relevant settlement documentation (for example, collection). This must happen within a business day. The payment is debited from the client’s account within the amount available at the time of debiting. If there is not enough money, the operation will not be carried out, and the money will come to the card;
- in a situation where the counterparty sent money, but they were not received by the other party, this often indicates an error in the details. In this case, the payment will be sent to account «47416», that is, to «funds that were received on correspondent accounts before clarification.» In this case, the counterparty needs to write a letter and clarify that the details were indeed indicated incorrectly by the sender. The clarification should be sent from your bank. Only after that, the payment can be transferred in full. If the receiving bank does not read the clarification letter, after 3 working days the funds will be sent back to the sender’s account.
8. Difference between a correspondent account and a settlement account
There is a big difference between a current account and a correspondent account, but in order to understand it, you need to know what a current account is. It can be opened to an individual entrepreneur and any legal entity for the purpose of making mutual settlements with counterparties and sending funds to the accounts of budgetary organizations.
In addition, legal entities consider it the most convenient way to track the movement of their funds, regardless of the period, since each of the transactions can be found in your personal account. Speaking about the specific differences between the accounts, it is worth highlighting the following:
- difference in spelling. Both settlement and correspondent accounts are 20-digit. But, the latter always starts with the numbers «407» and «408». The first applies to legal entities, and the second to individual entrepreneurs, as well as individuals. At the end of the account, an ordinary number in the banking system is indicated. KC always starts with the number «301», and the last number is the BIG of the bank;
- as mentioned above, a current account is opened by legal entities or individual entrepreneurs, while a correspondent account can only be opened by a bank;
- current account allows you to make transfers between individual entrepreneurs, legal entities and persons engaged in private practice. Regarding the correspondent account, funds are transferred between the accounts of banks and the Central Bank of Russia;
- the purpose of opening a current account is to serve the activities of individual entrepreneurs and legal entities. A correspondent account implies servicing the activities of banking institutions with the participation of the Central Bank and, if necessary, other financial organizations;
- the owner can put a loan on the current account, while the correspondent account does not provide such an opportunity.
9. Mutual settlements between banks
Interbank settlements occur when counterparties have accounts in different banking institutions. In such a case, two types of calculations are provided, in which correspondent accounts of banks take part:
- Decentralized. This type of interbank settlement involves the implementation of the operation without the participation of the Central Bank of the Russian Federation. The operation is based on a correspondent agreement concluded between banks;
- Centralized. This type of settlement is the most popular, since, in addition to banking institutions, the Central Bank takes part in the operation. The payment goes through the CU, and the Central Bank exercises control at the legislative level.
10. Where is the best place to open a correspondent account
Each of the cases should be considered individually. Before opening an account, it is necessary to carry out a feasibility study and requirements analysis. Finding the right set of correspondent partners, taking into account the currency, needs, customer base and number of transactions, is a rather complicated process. Speaking of start-up entrepreneurs, they often face difficulties related to the protection of correspondent accounts.
Success or failure in the service process is directly related to cooperation and awareness of how a correspondent account works and works. At the moment, you can use special programs that will help you choose a bank to open a correspondent account with a minimum probability of failure.
11. What is the difference between a correspondent account and a correspondent account
Due to lack of experience, many people confuse correspondent and correspondent accounts, but they have fundamental differences. Correspondent account refers to bank accounts, and the corresponding to accounting and banking is not directly related. Corresponding accounts are called accounts used in the process of accounting.
They are based on accounting and financial transactions. They are recorded in credit and debit accounts. At the same time, in the banking system, the corresponding accounts can be used during the formation of payment orders, since without their participation it is impossible to make a bank transfer.
12. Where to get information about a correspondent account
Speaking about payment transactions that are carried out within the same bank, it is not necessary to know the correspondent account. But, if we are talking about interbank transfers, it will be required for both the recipient and the payer. These details can be found as follows:
- reviewing the service agreement. The account will be indicated at the bottom of the document with the rest of the details;
- in a mobile application or in a personal account on the official website of the bank;
- in a branch of a financial institution;
- by contacting the operator by phone;
- in the chat on the official website (if available).
In addition, the correspondent account can be found from the documents submitted by the recipient of funds. One bank may have a large number of CUs opened, so it is better to request a specific number from the company to whose balance the money will be transferred. If a payment order is issued through a mobile application or a personal account on the site, in the process of filling in other details, a correspondent account will be provided automatically.
A correspondent account is an account assigned to a specific banking institution or other financial institution. It is used to make money transfers between the Central Bank and other institutions. The Central Bank of the Russian Federation is also involved in the opening of the CU, in addition, it guarantees the protection of funds in the accounts.