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Financial Institutions Must Verify Customer Identification and Beneficial Ownership
New regulations have been implemented to ensure that financial institutions thoroughly verify the identity of their customers and beneficial owners to prevent money laundering and terrorist financing.
Verifying Customer Identity and Beneficial Ownership
According to Article 8 of the regulation, financial institutions must take reasonable measures to determine if a customer is acting on their own or on behalf of one or more beneficial owners. If a customer is found to be acting on behalf of another party, the institution must verify the identity of that party as well.
Simplified CDD Measures Allowed
However, the regulation does allow for simplified customer due diligence measures in certain circumstances where the risk of money laundering or terrorist financing is lower. For example, if a customer’s identity is publicly available, simplified measures may be employed.
Delayed Customer Identification Verification Permitted
In some cases, financial institutions may engage in business with customers prior to completing the verification process, as long as they can demonstrate that the ML and TF risks are effectively managed.
Risk Management Procedures Required
To ensure compliance with these regulations, financial institutions must adopt risk management procedures to manage the ML and TF risks associated with delayed customer identification verification. This includes:
- Limiting the number, types, and amount of transactions that can be performed by customers
- Maintaining accurate and up-to-date records of customers and beneficial owners throughout the duration of the business relationship
Additional Requirements for Customer Information
In addition to the requirements outlined above, financial institutions must gather and maintain customer and beneficial owner(s) information throughout the course of the business relationship. This includes:
- Obtaining updated financial statements and taxation information from legal persons
- Ensuring that all transactions conducted by customers are accompanied by supporting documentation
Conclusion
The regulation is designed to ensure that financial institutions have a robust system in place to prevent money laundering and terrorist financing, while also allowing for simplified customer due diligence measures in certain circumstances where the risk of ML and TF is lower.