Thursday, July 30, 2015

Basel Committee Proposes Revisions to the General Guide to Account Opening

The Basel Committee on Banking Supervision ("BCBS") has issued a public consultation on the proposed revisions to the General Guide to Account Opening. The Guide focuses on the measures that banks can undertake in order to develop functional customer identification and verification procedures so that they are able to meet their obligations under the anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) requirements. Once finalized, the Guide will be incorporated into the BCBS' guidelines for a sound management of risks related to money laundering and financing of terrorism.

For the identification of natural persons who are customers or beneficial owners, the bank should collect at minimum, the person's legal name, complete permanent address, nationality, official personal identification number and date and place of birth. When the account opening is the start of a customer relationship, the bank should collect further information with a view to developing an initial customer risk profile. Such information should include the customer's occupation, income, source of wealth and funds, expected use of the account, financial products or services requested and whether a public position has been held.

The bank should verify the information collected using reliable, independently sourced documents, data or information. The bank should take reasonable measures to verify the identity of the customer’s beneficial owner as well as verify that the legal person purporting to act on behalf of the customer is authorised to do so. Where customers are assessed as having higher-risk profiles such as politically exposed persons ("PEPs"), the bank must perform enhanced verification procedures which includes obtaining evidence of the customer's permanent address utilising official papers or home visits. The bank must establish that the customer exists and establish that the person the bank is dealing with is that customer.

With regards to legal persons and arrangements, the bank must identify and verify the identity of the customer, and understand the nature of their business, and their ownership and control structure. The bank should pay attention to the different levels and nature of risks associated with entities involved in such arrangements. The bank should obtain information on the name, legal form, status and proof of incorporation of the legal person. The bank should also obtain the permanent address of the principal place of the legal person's activities as well as the official identification number. The bank must identify the natural persons who have authority to operate the account and who exercise control of the legal person through ownership or other means as well as the beneficial owners. Depending on the level of risk, the bank may decide to obtain the legal entity identifier ("LEI") if available, as well as the identity of relevant persons holding senior management positions. For legal arrangements, the bank should at the minimum, obtain the name of the legal arrangement and proof of existence, address and country of establishment, nature, and purpose of the legal arrangement as well as the names of the settlor, trustee(s), the protector (if any), the beneficiaries and any other natural person exercising ultimate effective control over the legal arrangement.

The bank must obtain at the minimum, the nature and purpose of the activities of the legal person or entity and its legitimacy and the expected use of the account. The bank may also obtain the financial statements of the entity as well as the sources of funds paid into the account and destination of funds passing through the account. Similarly, the bank should verify the identity of the customer using reliable, independent source documents, data or information. The bank should obtain a copy of the Certificate of Incorporation and Memorandum and Articles of Association, or Partnership agreement or any other legal document certifying the existence of the entity. In addition, the bank should verify that any person purporting to act on behalf of the legal person is authorised to do so and his identity should also be verified. For legal arrangements, the bank should obtain a copy of documentation confirming the nature and legal existence of the account holder such as a deed of trust or register of charities. Other procedures of verification could include obtaining an independent undertaking from a reputable firm of lawyers or accountants confirming the documents submitted, prior bank references as well as through public and private database searches. The bank should verify the identity of the beneficial owners of the legal persons and arrangements.

For applicants for an account under retirement benefit programmes, the trustee or any other person who has control over the relationship such as the administrator, programme manager or account signatories, can be considered as beneficial owners. Therefore banks should take the appropriate measures to identify them and verify their identities. Where the applicants are friendly societies, cooperatives and provident societies, those persons exercising control or significant influence over the organisation's assets such as account signatories should be considered the beneficial owners and should therefore be identified and verified.

For cases whereby a professional intermediary opens a customer account on behalf of a single customer, the bank must identify the customer. Professional intermediaries often open 'pooled' accounts on behalf of a number of entities. Where funds held by the intermediary are not co-mingled but “subaccounts” are established which can be attributed to each beneficial owner, all beneficial owners of the account held by the intermediary should be identified. Where the funds are co-mingled, the bank should identify the beneficial owners.

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