At its most basic level, Customer Due Diligence involves collecting pertinent information and verifying potential customers’ identity and the activities in which they are involved to a sufficient level of confidence that they do not pose any money laundering and terrorist financing risks to the financial institution.
The Customer Due Diligence process can be a complex process and may involve several steps. Temple Consulting is pleased to provide you 7 steps to ensure for an effective and efficient Customer Due Diligence process.
- Data Collection
The first step of the Customer Due Diligence process involves obtaining and collecting information from the customer. This process involves collecting basic information that will enable the financial institution to identify the potential customer.
- Independent Verification of Information
Collecting information about a potential customer is not enough. The financial institution should ensure that measures are put in place to verify the information collected from the customer to ensure accuracy and legitimacy of the data. Examples of verification of information include requesting supporting documents from the customer and ensuring that same reflects the information the customer has provided.
- Name Screening
After verifying the information provided by the potential customer, the financial institution should proceed with name screening. The name screening process involves performing checks on the name of the potential customer via a name-screening tool or through a blacklist database. The aim of this exercise is to determine if the potential customer is involved in any illegal matters and to also determine if the potential customer is a terrorist, a Politically Exposed Person or a Sanctioned individual/entity.
- Risk Assessment
After screening the name of the potential customer and results have been obtained, a risk assessment should be conducted to determine the level of money laundering/terrorist financing risk the potential customer may pose. The risk assessment exercise usually takes into consideration several factors such as profile of the potential customer, nature of his business activities, jurisdictions involved and volume of proposed transactions. Depending on these analyses, a risk rating is allocated to the potential customer and, depending on the risk rating of the customer, the financial institution may decide to accept or decline the business relationship. In other cases, the financial institution may also request for further information and go through an Enhanced Due Diligence.
- Enhanced Due Diligence
An Enhanced Due Diligence is usually carried out for business relationships posing a higher ML-TF risks for the financial institution. The Enhanced Due Diligence process usually provides a greater level of scrutiny and highlights risks that are usually not detected during the Customer Due Diligence process. During this process, special attention is paid to the nature of the source of funds and wealth of the potential customer as well as to the Ultimate Beneficial Owner.
It is also at this stage that Board approval is required before proceeding with the business relationship since the latter is deemed to be risky.
- Ongoing Monitoring
This process usually involves ongoing scrutiny of the business relationship for money laundering and terrorist financing risks to ensure that there have not been any changes in the customer’s profile. Special attention should be paid to the behavior of customer, transactions undertaken by the customer, volume of transactions, jurisdictions involved, and any adverse information found on the customer. Ongoing monitoring also enable the financial institution to identify any sanction hit on the customer and to enable for timely reporting to the authorities.
- Record-Keeping
The last stage of the Customer Due Diligence process involves record-keeping. Record-keeping usually involves keeping records of all transactions and documents on the customer. It also allows the financial institution to understand and trace back the relationship with the customer and enable for timely retrieval of information and reporting to the authorities, if need to. The records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.
Conclusion
With millions of transactions processed every day, Customer Due Diligence is often considered as the cornerstone of an effective AML-CFT program. Customer Due Diligence is also viewed as a critical function to assess risks posed by potential and existing customers and it is vital for financial institutions to design and implement an efficient Customer Due Diligence process to ensure that the right information is being collected and the right verifications are carried out before proceeding with a business relationship. One should also note that, Customer Due Diligence does not stop at onboarding level. Rather, it is a continuous process, and the financial institution has the obligation to carry out ongoing monitoring to assess if there has been any changes in the customer’s profile.
How Can Temple Consulting Help You?
Temple Consulting Ltd (TCL) specializes in the provision of Compliance Support Services to firms licensed by the Financial Services Commission or the Bank of Mauritius, and other companies with specific requirements under anti-money laundering legislations. Temple Consulting can help you assess the effectiveness of your Customer Due Diligence process as well as provide you with a series of recommendations for any gaps identified.
Should you require any further information, please do not hesitate to contact us on 210 35 88 or templeconsulting@templegroup.mu
Additionally, our sister company, Temple Professionals, offers a wide range of compliance related courses which are accredited with the Mauritius Qualifications Authority and approved by the Human Resource Development Council (HRDC). Temple Professionals is conducting a Masterclass in KYC/CDD on the 30th of March 2021.
Should you require any further information, please do not hesitate to contact us on 210 35 88 or templepro@templegroup.mu
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