Financial Crime World

Gibraltar Businesses Must Heed “Know Your Customer” Guidelines to Combat Financial Crime

In an effort to combat the multi-trillion-dollar financial crime industry, firms in Gibraltar are taking steps to strengthen their “Know Your Customer” (KYC) efforts. The goal of KYC guidelines is to verify the identity, suitability, and risks of current or potential customers, thereby identifying suspicious behavior such as money laundering and financial terrorism before it materializes.

The Origins of KYC Regulations

The origins of KYC regulations date back to 1970 when the US passed the Bank Secrecy Act (BSA) to prevent money laundering. The guidelines have undergone significant additions over the years, including after the September 11, 2001 terrorist attacks and the 2008 global financial crisis. Today, any company with exposure to client risk in Gibraltar - including banks, insurance companies, and creditors - must develop a KYC strategy for engaging with customers.

Requirements to “Know Your Customer”

The framework consists of three steps: customer identification program (CIP), customer due diligence (CDD), and enhanced due diligence (EDD).

CIP Requirements

  • Pull four pieces of identifying information about a client, including:
    • Name
    • Date of birth
    • Address
    • Identification number
  • Many firms take additional steps in their screening process, checking clients against government sanction lists, politically exposed person (PEP) lists, or known terrorism lists.

Financial Transaction Examination

  • Examine financial transactions to separate potentially risky behavior from regular business activity.
  • Gather information from various reporting agencies, public databases, and third-party sources.

CDD Process

  • Classify all the information collected during the CIP.
  • Examine the nature and beneficiaries of existing relationships to ensure all activity is consistent with historical customer information.
  • Verify a customer’s identity and assess their riskiness.
  • Frequently monitor this information for unusual spikes in activity or changes to sanction lists.

Enhanced Due Diligence (EDD)

  • Take extra steps to gain a better understanding of high-risk clients, including:
    • Verifying the source of wealth
    • Obtaining detailed management reports
    • Conducting relevant third-party research
  • By demonstrating a deeper understanding of high-risk clients, firms can mitigate potential financial crimes and ensure compliance with KYC regulations in Gibraltar.