CSPs Urged to Improve Due Diligence in Company Formation
In a recent thematic review, the Financial Intelligence Analysis Unit (FIAU) identified areas of improvement in the due diligence practices of Companies Service Providers (CSPs) when forming companies.
Key Findings
The review found that while CSPs generally collect sufficient information on the sources of funds (SOF) and source of wealth (SOW) of shareholders and beneficial owners (BOs), there are opportunities for improvement. Specifically, the FIAU highlighted:
- Instances where CSPs failed to request supporting documentation to verify SOF despite assessing high ML/FT risks
- Requests for multiple documents for low- or medium-risk transactions
- Failure to retain records of customer onboarding forms and correspondence related to financing information
Recommendations
To improve compliance, the FIAU recommended that CSPs:
- Apply a risk-based approach to obtain documentation to verify SOF
- Request supporting documentation only when ML/FT risks are assessed as high
- Collect relevant information
- On how newly formed companies will continue to be financed and whether future capital injections are planned
- Retain records
- Of customer onboarding forms and correspondence related to financing information
Importance of Improving Due Diligence
By implementing these measures, CSPs can enhance their due diligence practices and contribute to the prevention of money laundering and terrorist financing (ML/FT) in company formation. It is essential for CSPs to prioritize due diligence and apply a risk-based approach to ensure compliance with regulations.
Conclusion
The FIAU’s thematic review emphasizes the importance of improving due diligence practices in company formation. By following these recommendations, CSPs can reduce the risks associated with ML/FT and contribute to a safer financial environment.