Financial Crime World

Banks Must Terminate Business Relationships with Customers Failing to Verify Identity

Strengthening Anti-Money Laundering (AML) and Combating Terrorism Financing (CFT) Measures

In an effort to enhance AML/CFT measures, banks are required to establish a reasonable timeframe for completing customer identity verification before commencing business relationships. Failure to do so may result in the termination of the business relationship.

Regulations and Requirements

According to regulations, if a bank permits a customer to open an account or commence business activities without completing customer identity verification, it must adopt relevant risk control measures. These measures include:

  • Establishing a timeframe for completion
  • Reviewing the business relationship periodically
  • Limiting transactions and types of transactions
  • Restricting payments to third parties unless certain conditions are met

The regulations also emphasize the importance of verifying the authenticity, appropriateness, or intention of customers and beneficial owners. If there is any doubt, banks must not allow exceptions that permit payment to third parties without strict verification.

For legal persons, banks must:

  • Understand whether they can issue bearer shares
  • Take measures to ensure the update of beneficial owners
    • Requesting customers to notify the bank immediately when the identity of shareholders changes or when a shareholder with a controlling ownership interest notifies the customer of their identity

Customer Due Diligence (CDD) Requirements

When conducting CDD, banks are required to:

  • Utilize in-house databases or external sources to determine whether customers, beneficial owners, or persons holding senior management positions are politically exposed persons (PEPs)
  • Take enhanced due diligence measures if PEPs are identified
    • To mitigate the risk of money laundering and terrorist financing

Additional CDD requirements include:

  • Performing enhanced due diligence on high-risk customers
  • Conducting financial transactions above a certain amount with occasional customers
  • Verifying identification data through government-issued documents or other reliable means

Consequences of Non-Compliance

Banks that fail to comply with these regulations may face severe consequences, including termination of business relationships with customers. As such, it is essential for banks to prioritize AML/CFT compliance and ensure the integrity of their customer onboarding processes.