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Know Your Customer in Switzerland: Financial Intermediaries Must Take Due Diligence Seriously

In today’s complex global financial landscape, Swiss financial intermediaries are being urged to prioritize customer due diligence to prevent money laundering and terrorist financing. Compliance with formal due diligence obligations is essential for maintaining a strong business relationship.

Plausibility Check

A plausibility check is a crucial step in identifying customers, involving an examination of generally accessible information. Financial intermediaries must be familiar with the appearance of genuine identification documents from various countries, even if documentation on foreign ID cards may need to be purchased for this purpose. If intermediaries are unwilling to incur such expenses, they may need to refrain from accepting identification documents from jurisdictions they do not know and thus the corresponding customers.

Identifying Counterfeits

To detect potential counterfeits, examining persons must be aware of common signs of forgery, which can be determined with reasonable effort. For instance, an examination under UV light may be necessary in certain circumstances.

Digital Certificates are Not Permitted

Digital certificates are not a permitted means of identification. However, personal meetings via digital channels, such as video and online identification, are now allowed (as per FINMA Circular 2016/7). This technological neutrality has also been applied to other articles relating to formal criteria from AMLO-FINMA, including AMLO-FINMA 16 and AMLO-FINMA 28.

Outsourcing Customer Due Diligence

Financial intermediaries may outsource customer due diligence to third parties who are themselves obliged by law to comply with anti-money laundering regulations. Pursuant to Art. 28 ALMO-FINMA and Art. 43 CDB 20, such delegation is permissible without a written agreement. A financial intermediary can delegate the identification process to another entity within its group or to another financial intermediary subject to equivalent supervision and regulation.

Alternatively, third parties not obliged by law to comply with anti-money laundering regulations can be used, provided they are carefully selected, instructed, and monitored, and their obligations are laid down in a written agreement. The third party must have sufficient knowledge of the business and formal identification procedures to identify any potential money laundering or terrorist financing indications during the identification process.

Specific Third-Party Providers

In Switzerland, financial institutions may also outsource customer due diligence by contract to other third parties not obliged by law to meet anti-money laundering regulations, such as WebID, IDnow, and PostIdent. The CDB 20 specifies that banks can mandate the verification of a controlling person’s and beneficial owner’s identity through written agreements with instructed mandatories who are able to monitor the proper execution of verification.

Registration Requirements

When outsourcing customer due diligence, financial institutions must ensure that third parties have the necessary licenses or registration requirements in place. In Switzerland, no registration is required for third-party providers of anti-money laundering services.

Entities That Can Be Relied Upon

Entities that can be relied upon specifically by law as a third party to comply with anti-money laundering regulations include credit institutions, financial institutions, auditors, external accountants, and tax advisors, among others. Notaries, independent legal professionals, trust or company service providers, estate agents, and other high-value goods traders do not meet this criteria.

Conclusion

In conclusion, Swiss financial intermediaries must prioritize customer due diligence to maintain a strong business relationship and prevent money laundering and terrorist financing. Compliance with formal due diligence obligations is essential, and digital channels can be used for identification purposes under certain conditions. Outsourcing to third parties who are obliged or unobliged by law to meet anti-money laundering regulations may also be considered, but careful selection, instruction, and monitoring are crucial.