Customer due diligence ('CDD') involves: identifying and verifying customer identity (on the basis of documents, data or information obtained from a reliable and independent source); and obtaining information on the purpose and intended nature of the business relationship.
Additional CDD measures should be undertaken where: (a) a beneficial owner (who is not the customer) is in a position to exert influence over a customer relationship; or (b) a customer relationship involves a Politically Exposed Person ('PEP').
Core requirements (Examples)
A regulated firm's CDD arrangements must comply with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('MLR'), including:
The identification and assessment of money laundering and terrorist financing risk - Taking account of:
Information provided by the regulator (e.g. FCA) under the MLR.
Customer, geography, product/service, transaction and delivery channel risks.
Establishing beneficial ownership of a legal person, trust or similar legal arrangement, via controls designed to ensure a documented understanding of ultimate ownership and control by one or more natural persons (i.e. named individuals).
Where a PEP, relative of a PEP, or a known close associate of a PEP is involved in a business relationship, adequate measures must be taken to establish the source of wealth and source of funds involved in the proposed business relationship or transactions with that person.
Where a firm is unable to satisfy itself as to the identity of a customer or the beneficial owner (who is not the customer); verify that identity; or obtain sufficient information on the nature and intended purpose of the business relationship, it must not enter into a new business relationship and must terminate an existing one [MLR 31 (1)]
Customer due diligence
The response to CDD risk should:
Determine the level of CDD to be applied to each customer and beneficial owner.
Include measures to verify customer identity and determine whether reasonable grounds exist to know or suspect money laundering or terrorist financing may be taking place.
Incorporate more extensive due diligence (e.g. more identification checks and/or require additional information) for higher risk customers.
Obtaining additional customer information, where this is appropriate to their assessed money laundering/terrorist financing
Enable the monitoring of customer transactions/activities.
How we can help you
For non-standard and higher-risk relationships at new-customer on-boarding, or as part of a periodic or event driven review process, FCRM can undertake due-diligence research to assist a client firm's assessment of customer (or business counterparty) risk.
Where practicable, particularly on international enquiries, we utilise a network of independent specialists who are accustomed to undertaking confidential and sensitive due diligence assignments, often with knowledge of the local language and research capability.