CH29- Customer due diligence (CDD)

Question 1

CDD

Answer 1

Is a legal requirement
Understand a client’s identity and business activities s that any risks can be properly managed
Will help to make informed decisions about the clients professional standing and acceptability
Understand the purpose and nature of the business relationship

Question 2

CDD principles

Answer 2

Required components of good CDD:

1) Identifying the client- verify their identity
2) Risk assessment- client risk, service risk, geographic risk, sector risk, delivery channel risk
3) Verification- evidence gathering- gather info on intended purpose and nature of business really

Question 3

When to carry out CDD

Answer 3

At start of new business relationship
At appropriate points during lifetime of relationship
When an occasional transaction is to be undertaken

Question 4

Determining the degree of CDD

Answer 4

Business must adopt a risk based approach
Take into account the type of client, business relationship, product or transaction, and ensure appropriate emphasis is given to those areas that pose a higher risk

Question 5

Beneficial owners for CDD purposes

Answer 5

Bodies corporate (LLPs and LPs)= >25% voting rights and >25% shares
Partnerships other than LLPs and LPs= Entitled to or controls >25% of voting rights, Entitled to or controls >25% capital or profits

Question 6

Simplified due diligence (SDD)

Answer 6

Client is low risk
Extent and timing of CDD measures can be adjusted to reflect the assessment of low risk
Ongoing monitoring for unusual or suspicious transactions still required

Question 7

Enhanced due diligence (EDD)

Answer 7

Client is higher risk
Examine the background and purpose of engagement
Increase degree and nature of monitoring of the business relationship in which the transaction is made to determined whether transaction or relationship is suspicious

Question 8

SDD vs EDD

Answer 8

If politically exposed person involved, always need EDD
PEP= individual entrusted with prominent public function (other than middle ranking or more junior official) + family members + close known associates
Treat PEP for 12 months after cease to hold relevant position

Question 9

3rd parties and CDD

Answer 9

Can rely on 3rd parties to carry out CDD provided they are members of regulated sector
Must still carry out risk assessments and ongoing monitoring
Business still liable for any CDD failings even if placed reliance on 3rd partying

Question 10

Group companies and CDD

Answer 10

Can treat group companies as a single entity for CDD purposes

Question 11

Sub contractors and CDD

Answer 11

Must consider what companies to perform CDD on in a subcontractor

Question 12

Evidence gathering

Answer 12

For individuals, obtain full name, dob and residential address

Various sources of information can be used for CDD
e.g. passport, photo driving licence, national identity card
More evidence needed for high risk individuals
e.g. utility bills, council tax, bank statements

Question 13

Electronic evidence

Answer 13

Copies may need to be certified

Electronic ID verification permitted but may need to be backed up with other forms of evidence

Question 14

Issues with CDD

Answer 14

If CDD cannot be performed immediately, can only be postponed in low risk situations
If prospective/existing client refuses to provide relevant information, should not proceed with the work