Parties for Customer Due Diligence: Understanding the Terminology
In an effort to prevent money laundering and terrorist financing, governments have introduced new regulations requiring financial institutions to comply with customer due diligence (CDD) measures. As part of these efforts, several key terms have been defined to ensure clarity and consistency in their application.
Intermediate Entities: The Role in Customer Due Diligence
The term “intermediary entity” refers to a financial institution that receives requests to receive and transmit electronic currency transfers on behalf of an originating entity and a beneficiary entity or another intermediary entity. These entities play a crucial role in CDD, as they must comply with regulations related to customer due diligence and relying on third parties for CDD.
International Electronic Currency Transfers: A Definition
The term “international electronic currency transfer” defines a single or chain of electronic currency transfers that involve one or more parties located outside the country. This definition is critical in understanding the scope of CDD requirements, particularly when dealing with cross-border transactions.
Other Key Terms
Other terms defined in the new regulations include:
- Originating Entity: a financial institution that receives requests to execute an electronic currency transfer.
- Politically Exposed Person (PEP): an individual who holds or has held a significant public position, as defined under Clause 6.
- Property: assets of any kind, whether real or personal, corporeal or incorporeal, moveable or immovable, tangible or intangible.
- Record: any material on which data or information is recorded or marked and capable of being read or understood by a person, computer system, or other device.
- Reporting Entity: an institution required to report certain transactions to the authorities.
Implementation and Compliance
Financial institutions must ensure that they understand these definitions and implement CDD measures accordingly. Senior management is responsible for overseeing the proper conduct of the reporting entity and ensuring that customer due diligence is carried out effectively.
As the financial industry adapts to these new regulations, it is essential to stay informed about the terminology and requirements to prevent money laundering and terrorist financing.