Compound Growth

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30 April 2015

Money Laundering & Terrorist Financing

The Financial Conduct Authority has now published their revisions to the Firms Guidance on Financial Crime that came into effect on 27th April 2015. The regulator amended various sections including Chapter 2 on Systems & Controls (affecting Management Information and Risk Assessments) and Chapter 3 on Money Laundering and Terrorist Financing. In particular, their revisions to Chapter 3 focused upon , Enhanced Due Diligence (EDD) and the handling of higher-risk situations, as summarised below, in addition to source of wealth and source of funds.

Enhanced Due Diligence & Handling of Higher-risk situations

In circumstances where a higher risk of money laundering is depicted, firms must apply Enhanced Due Diligence measures, designed to provide firms with a greater understanding of the associated risks concerned with their customer than just undertaking Standard Due Diligence.

The aims of Enhanced Due Diligence (EDD) should:

• Provide more certainty that the customer and/or beneficial owner is who they inform they are
• That the purposes of the business relationship are above board; and
• Increase opportunities to identify and deal with any concerns that may have arisen with the information provided.

The degree of Enhanced Due Diligence must be proportionate to the risks associated with the transaction or business relationship, however, in majority of cases, firms can decide which aspects of Client Due Diligence to enhance. The firm’s decision would depend upon the reason why the customer was classified as high risk.

Examples of Enhanced Due Diligence (EDD) could be:

• Gathering additional information about the customer’s and/or beneficial owner’s business
• Acquiring stronger verification of the beneficial owner’s identity from reliable and independent sources
• Obtaining a cleared understanding of the customer/beneficial owner’s reputation and/or role in public and considering how this might affect the level of risk associated with the relationship
• Undertaking searched on the Customer’s directors and other individuals, exercising control to comprehend whether their business or integrity affects the level of risk associated with the customer
• Determining how the customer and/or beneficial owner obtained their wealth so that the firm is satisfied it is legitimate
• Determining the source of funds of the customer/beneficial owner to be satisfied that they are not from the proceeds of crime.

Further Reading:

• The FCA Financial Crime Guidance Amendments
• Chapter 2 Systems & Controls: Management Information
• Chapter 2 Systems & Controls: Financial Crime Risk Assessments.
• Chapter 3 Money Laundering & Terrorist Financing: Source of Funds & Source of Wealth
• Chapter 3 Money Laundering & Terrorist Financing: Enhanced Due Diligence
• Preventing Financial Crime: Information & Links

Money Laundering & Terrorist Financing: Enhanced Due Diligence (EDD)