Financial Crime World

Reliance on Third-Party Financial Institutions for Customer Due Diligence Measures

In a move to strengthen anti-money laundering (AML) and combat the financing of terrorism (CFT) measures, licensees in Bahrain are now permitted to rely on third-party financial institutions to perform customer due diligence (CDD) measures.

Background

According to Rulebook Volume 3: Insurance, Section FC-1.8, licensed insurance companies can outsource certain CDD elements to a third-party financial institution that is either a CBB licensee or an overseas financial institution regulated for compliance with FATF standards.

What does this mean?

  • Third-party financial institutions will apply their own procedures to perform the CDD measures.
  • The third party will typically have an existing business relationship with the customer independent of the relationship between the customer and the licensee.

Requirements

To rely on third-party financial institutions for CDD measures, licensees must ensure that they:

  • Obtain necessary information about the customer
  • Verify their identity using reliable sources
  • Understand the purpose and nature of the business relationship

Additionally, licensees are required to conduct periodic reviews of the arrangements with third parties to ensure compliance with the requirements outlined in Section FC-1.8.

Consequences of Non-Compliance

Failure to comply with these requirements may result in regulatory action.

Key Criteria for Third-Party Financial Institutions

For licensees that rely on third-party financial institutions for CDD measures, they must ensure that:

  • The third party is regulated and supervised for compliance with CDD and record-keeping requirements
  • The third party applies its own procedures to perform the CDD measures

Conclusion

By relying on third-party financial institutions, licensees can reduce the burden of conducting CDD measures while ensuring compliance with AML/CFT regulations. However, ultimate responsibility for compliance remains with the licensee.

Key Takeaways:

  • Licensees can rely on third-party financial institutions for CDD measures
  • Third-party financial institutions must be regulated and supervised for compliance with FATF standards
  • Licensees must conduct periodic reviews of arrangements with third parties
  • Failure to comply may result in regulatory action