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Independent Review Reveals Gaps in Financial Institution’s Due Diligence Procedures

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A recent review by an independent reviewer has uncovered significant gaps in the due diligence procedures of a prominent financial institution. The review, conducted under the Common Reporting Standard (CRS), aimed to assess the institution’s compliance with international standards for reporting and exchange of information.

Pre-Existing Entity Accounts Found Lacking

The review revealed that the institution’s processes for identifying reportable persons and obtaining self-certifications from account holders were inadequate. Specifically, the review found:

• The institution did not have adequate procedures in place to determine whether pre-existing entity account holders were reportable persons.
• Self-certifications obtained from passive non-financial entities (NFEs) with aggregated balances exceeding USD 1 million lacked essential information about controlling persons.

New Entity Accounts Found to Be Lacking

The review also found that the institution’s procedures for collecting self-certification forms from new entity accounts were incomplete. Specifically:

• The institution did not have processes in place to obtain and validate self-certifications from all new entity account holders, unless it could be determined based on publicly available information or information in its possession that the entity was not a reportable person.

Recommendations Made

Based on the findings of the review, several recommendations were made to improve the institution’s due diligence procedures. These include:

• Developing and implementing adequate processes for identifying reportable persons and obtaining self-certifications from account holders.
• Ensuring that self-certifications obtained from passive NFEs with aggregated balances exceeding USD 1 million include essential information about controlling persons.
• Establishing procedures for collecting and validating self-certification forms from all new entity account holders.

Conclusion

The review highlights the importance of implementing robust due diligence procedures to ensure compliance with international standards. The institution has committed to addressing the identified gaps and improving its procedures to prevent similar issues in the future.