Financial Institutions Must Identify and Verify Beneficial Owners

In a move to curb financial crimes, financial institutions are now required to identify and verify the beneficial owners of their customers’ accounts.

Identifying and Verifying Beneficial Owners

According to Article 8 of the regulation, financial institutions must take reasonable measures to determine if a customer is acting on his or her own or on behalf of one or more beneficial owners. If a financial institution determines that the customer is acting on behalf of a beneficial owner, it must verify the identity and address of the beneficial owner.

Maintaining Accurate Records

The regulation also requires financial institutions to maintain accurate and up-to-date records of their customers’ identities and beneficial ownership information throughout the course of the business relationship.

Simplified Customer Due Diligence Measures

In certain circumstances where the risk of money laundering or terrorist financing is lower, financial institutions may apply simplified customer due diligence procedures. These simplified measures must be commensurate with the identified risks and could include:

• Reducing the frequency of customer identification updates
• Reducing the degree of ongoing monitoring and scrutiny

Delayed Customer Identification Verification

Financial institutions are allowed to engage in business relationships with customers prior to the completion of the customer verification process, as long as they can demonstrate that the ML/TF risks are effectively managed. This may involve:

• Limiting the number, types, or amount of transactions that can be performed by the customer

Additional Requirements for Customer Information

Financial institutions must gather and maintain accurate and up-to-date information about their customers and beneficial owners throughout the course of the business relationship. This includes:

• Reviewing existing records at appropriate times to ensure they remain relevant and up-to-date
• Obtaining updated financial statements from legal persons, taxation information, and supporting documentation for all transactions conducted by customers

Implementation

Financial institutions must implement these new requirements immediately and provide detailed risk assessments and explanations for any simplified customer due diligence measures applied. They must also make their underlying risk assessment processes and procedures available to the relevant regulatory authorities upon request.

The new regulation aims to strengthen financial transparency and prevent financial crimes, including money laundering and terrorist financing. Financial institutions that fail to comply with these requirements may face severe penalties and reputational damage.