5.4 Due Diligence In Banking

Question 1

CDD

Answer 1

Identifying the customer and verifying that customers identity using reliable and independent source documents, data or info.

Question 2

Three types of CDD

Answer 2

1. Standard CDD = the basic level of information on their customers that banks must collect and verify
2. Enhanced CDD = a more detailed review of the customers activities and risk profile
3. Ongoing CDD = continuous monitoring of a customers activities to identify any changes or suspicious actives.

Question 3

CDD

Answer 3

Important for bank to carry out to reduce the risk of financial crime, ensure compliance, and to enhance its reputations and the integrity of the banking system.

Look into activities that the customer might be engaged in

Putting in place processes and procedures for anti-money laundering, fraud prevention and ways to combat the financing of terrorism.

Question 4

Five main applications of due diligence:

Answer 4

1. Know your customer
2. Anti money laundering
3. Credit scoring
4. Data protection
   5, payment services regulation

Question 5

Know your customer (KYC)

Answer 5

Policies and regulations that are out in place for b and to check and verify the identity of their customers.
To ensure they are not engaged in any bad activities.

Supports anti money laundering regulations.

Question 6

When a customer applied to buy a financial product, a bank must:

Answer 6

• establish the customers identity by examining relevant identification documents (passport)
• understand the customers activities to ensure they are legitimate by collecting information about their financial and business history.
• ongoing process as customer activities and circumstances can change. Bank must be aware of these changes

Question 7

Anti money laundering

Answer 7

Getting haram money and converting it into a legitimate source.

Activities can include theft, drug, tax evasion and the financing of terroism.

Due diligence can identify suspicious customer activities and report them.

It is the law to implement due diligence processes.

Question 8

Due dilutive against money laundering required bank to do certain things:

Answer 8

• identify and verify their identity by examining their documents (checking public records and other sources).
• access risk profile = based on the info already gathered and check any other relevant info
• monitor and update as due diligence is an ongoing process and things can change
• report if any concerns are noticed

Question 9

Credit checks on customers/ potential customers

Answer 9

Credit checks are called ‘credit ratings’ for a large company and ‘credit scoring’ for an individual or SMEs.

Question 10

Individual

Answer 10

Credit checks used to access the level of risk involved in providing financial service to a customer.

Like gather all info that will help them see how likely a customer is going to repay a loan.

Credit score companies - Experian and equifax

Question 11

Performing credit check on business

Answer 11

Bank will look at the history of the company
(e.g. length of existence, weather its making profit, what assets it has)

Bank must check personal background of directors

Question 12

Data protection

Answer 12

Applicable to banks as they hold people’s sensitive financial data.

Different countries have different ways of addressing data protection through regulatory frameworks.

High-level principles that apply in the UK and EU provide a good understanding of what is most important .

Question 13

7 principles that underpins the use of data in the UK and EU data protection regulation

Answer 13

1. Lawfulness, fairness and transparency = how data should be processed
2. Purpose limitation (has to be collected for legitimate purposes)
3. Data minimisation (only collect what is necessary and relevant)
4. Accuracy and then needs to be kept up to date
   (Inaccurate data must be delayed or fixed without delay)
5. Storage limitation (data should only be held for as long as it is needed in line with the purpose for which it was collected)
6. Integrity and confidentiality
7. Accountability (those using the data must be compliance with the applicable data protection regulations)

Question 14

Data protection principles

Answer 14

By applying these principles, banks can ensure that the customers data remains safe and help reduce the risk of identity theft, financial fraud and other money scams.

Question 15

TPPP

Answer 15

Third party payment services providers

Large banks are no longer the only institutions providing payment services.

Question 16

Payment services regulations

Answer 16

Many countries are changing the way payment systems are regulated.

Example: Argentine central bank (Banco Central de la)
Is trying to encourage growth in the fintech industry.

Aims to make transactions made through payment service clearer and to improve the protection.

Central bank of Nepal - has policies to promote digital payment and to regulate and issue licenses to payments system operators and providers.