Know your customer/customer due diligence (KYC/CDD) requirements have been the focus of regulatory revision processes both in the U.S. and the EU in 2016, leading to a changed understanding of the KYC/CDD requirements and the approaches and tools needed to meet these requirements.

These developments are the result of shortcomings in KYC/CDD processes and procedures, which have resulted in numerous enforcement actions across the banking sector in recent years, but also due to the increased threats emanating from terrorist activities. KYC/CDD processes act as a link between all financial crime areas, including the new topics of increased international focus— namely targeted sanctions and anti-human trafficking.

An increased focus has been placed on risk assessment, high-risk countries politically exposed persons (PEPs), beneficial ownership and on actually identifying and verifying customers, their business—and if relevant—the customer’s customer. The point here is to understand not only who the legal owner of the business or account is, but who actually controls the entity. With regards to PEPs, there are cases where PEPs are not registered as owners of an entity, but are indeed controlling the business. The purpose and nature of the customer has to be understood in order to determine the purpose for the account. Source of funds and source of wealth must also be determined.

To read the full article written by Berlin Risk’s Jennifer Hanley-Giersch and published in ACAMS Today, please click here.