Financial Crime World

Financial Institutions Required to Conduct Enhanced Customer Due Diligence Measures

In an effort to combat money laundering and terrorist financing, financial institutions (FIs) have been mandated to conduct enhanced customer due diligence (CDD) measures in specific circumstances.

Circumstances Requiring Enhanced CDD

According to Section 10A(1)(a)(ii) of the Anti-Money Laundering and Combating the Financing of Terrorism Act (AMLA), FIs are required to conduct CDD measures when there is suspicion of money laundering or terrorist financing. Additionally, Section 15A(1)(a)(iii) of AMLA and new Section 10A(1)(a)(iii) require FIs to conduct CDD measures when the FI has doubts about the veracity or adequacy of previously obtained customer identification data.

Customer Identification and Verification

Section 20 of AMLA and Section 10A of the Anti-Money Laundering and Combating the Financing of Terrorism (Prevention) Act (AMLPOTA) require FIs to identify customers and verify their identities using reliable, independent source documents, data or information. This includes:

  • Identifying customers and verifying their identities using relevant information or data obtained from a reliable source
  • Verifying that any person purporting to act on behalf of the customer is so authorized, and identifying and verifying that person’s identity

Beneficial Owner Identification and Verification

FIs are also required to identify the beneficial owner and take reasonable measures to verify their identity using relevant information or data obtained from a reliable source. This ensures that the financial institution can establish the identity of the beneficiary at the time of payout.

  • Identify the beneficial owner
  • Take reasonable measures to verify their identity using relevant information or data obtained from a reliable source
  • Verify that the financial institution is satisfied that it will be able to establish the identity of the beneficiary at the time of payout

Life Insurance Policy Beneficiary as a Relevant Risk Factor

FIs are required to include a life insurance policy beneficiary as a relevant risk factor in determining whether enhanced CDD measures are applicable. If the FI determines that a beneficiary who is a legal person or a legal arrangement presents a higher risk, it should take enhanced measures which may include:

  • Reasonable measures to identify and verify the identity of the beneficial owner of the beneficiary at the time of payout

Verification of Identity

In all cases, FIs are required to verify the identity of the customer and beneficial owner before or during the course of establishing a business relationship or conducting transactions for occasional customers. If verification is not completed beforehand, it must be done as soon as reasonably practicable after the establishment of the business relationship.

By implementing these enhanced CDD measures, FIs can ensure that they are complying with anti-money laundering and combating the financing of terrorism regulations, while also mitigating the risk of financial crime.