How do you perform an audit or check of your client’s identity?
Your vetting and verification check of your clients’ identity is built upon your risk assessment and the identified risk. Afterwards, you can conduct an audit under strict or relaxed procedure.
Strict procedures for physical persons can, among other things, be a request for a copy of their passport, a physical meeting or further demands regarding the terms of your expected shared business.
If it’s regarding a legal entity, you can request founding documents, articles of association and make more comprehensive requirements for the description of the business scope.
A KYC check requires the retrieval of personal data documenting the client’s identity. As a starting point this includes name and social security number or legal entity identifier (LEI), depending on whether you’re assessing a person or a legal entity. With this method you can verify and check your client’s identity – and thereby comply with KYC standards.
This identifying information needs to be vetted via an independent and credible source. That means the documents need to be verified and compared with other registries or sources that can validate addresses, passports or names.
For both persons and legal entities you need to – if relevant – obtain information about the goal of the business venture and the extent of your relation.
How often do you need to check your client’s identity?
You need to vet your client’s identity at the start of every business venture – and if there are changes in your client’s circumstances, as well as at appropriate times.
With high-risk clients the procedure can be repeated once a year, whereas with Low-Risk Clients a check every five years can suffice.
The extent of the KYC check depends on the risk assessment of the client. In cases where you assess that there is a low risk of money laundering, you can perform a more lax KYC check. You could, for example, choose not to obtain updated documentation, provided that the identification papers (ID), you received originally, still are legally valid.
Remember to check for PEP (Politically Exposed Person)
As a consequence of the latest Anti-Money Laundering Directive from the EU, you are now also required to determine whether the person is a PEP (Politically Exposed Person).
Politically exposed people are individuals whose political position or relation makes them a high risk target for money laundering. That’s because they’re more likely to be exposed to blackmail, bribery or in some other way (voluntary and coerced) be involved in financial crimes.
This can be done by cross-referencing with publicly available information and databases, also known as PEP-lists.
It’s important to be aware that these lists are not sufficient in order to indicate whether a person is considered a PEP – they’re only lists of the people that local governments have reported as explicitly politically exposed.
Spouses, business partners etc. of people on the PEP-lists are also considered PEPs. That makes it especially difficult for businesses to comply with the PEP-requirements without using external data sources that specialize in maintaining updated lists of all persons, that can be defined as PEP.
NewBanking works together with a number of external data vendors that have specialized in having updated PEP-lists that cover a wide variety of nationalities and sectors
