Regulated Firms are required to have appropriate controls in place to counter the threat of Money Laundering and terrorist financing.
The FSA requires Regulated Investment Businesses to have systems and controls in place to counter any threats to Financial Crime and this includes enhanced due diligence. There are three scenarios where the Firm is required to undertake enhanced due diligence:
- Non face to face transactions
- Dealing with Politically Exposed Persons (PEPs)
- In respect of a correspondent banking relationship
In a nutshell, the Firm is required to have verification procedures in place to determine if the transaction is involving a PEP - (not to be confused with Personal Equity Plans), or a remote transaction such as over the Internet or telephone based.
Such cases should be referred to senior management within the Firm:
- For approvalto establish or maintain a business relationship with the customer;
- To be satisfied that the source of funds from such customers is documented;
- To be included in the enhanced ongoing monitoring of the business relationship.
This can be done on a risk-sensitive basis.
The JMLSG guidance notes were last updated in November 2007
Section 5.5 sets out the requirements for Enhanced Due Diligence (EDD):
EDD must be used for all situation which by its nature can present a higher risk of money laundering or terrorist financing. This may be done on a risk based approach.
The EDD supplements the existing verification and KYC requirements.
s 5.5.6 states - "When someone becomes a new customer, or applies for a new product or service, the firm may, depending on the nature of the product or service for which they are applying, request information as to the customer’s residential status, employment details, income, and other sources of income, in order to decide whether to accept the application."
Maintaining a list of customers that are subject to EDD together with notes of the ongoing monitoring is also necessary.
