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Customer due diligence (Identification information (Collected in order to…
Customer due diligence
Steps taken by financial services companies to steps to verify the identity of their customers and the veracity of their actions
OSPs are usually required to maintain customer due diligence procedures in order to meet their statutory and regulatory requirements. These procedures will usually involve the following
Identifying and verifying the identity of the client and the beneficial owners and controllers of client entities on the basis of documents or information obtained from a reliable independent source
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Relationship information
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Type, volume and value of the activity that is expected
Source of funds that will be placed under the control of the OSP. The source of funds is the activity which generates the funds for a customer, for example their occupation of business activities
The source of the customer's wealth and if the customer presents a higher risk, the OSP may also be required to establish the customer's source fo wealth. The source of wealth describes the activities that have generated the total net worth of a person
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It can sometimes be difficult to verify information given by the client and there is a judgement call to be made by the OSP whether acting as a trustee or supplying the officers of a company in deciding how far they should go with their enquiries. For instance even with proof of an inheritance from, a lawyer or an executor of an estate being received, it may still not be obvious how the assets/funds were originally generated by the deceased and so on
It is important that an OSP is comfortable with any explantations or documentary evidence that they receive, prior to accepting the business in order to ensure that they comfortable that there is no reason to suggest that the assets are form the proceeds of crime
In the same way that establishing past events can present difficulties to the clients, it is also very difficult to establish at the outset of a business relationship about the future value and volume of the activity, however it is best practice and a regulatory requirement in some jurisdictions for OSPs to document a customer profile. The OSP must therefore ensure that it has some documented expectations in this regard
Enhanced due diligence
Steps taken above and beyond normal customer due diligence by financial services companies to verify the identity of their customers and the veracity of their actions
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EDD measures are additional measures that are applied to higher risk relationships. These steps could include obtaining further customer due diligence identification information and relationship information, taking additional steps to verify the information obtained or commissioning due diligence reports from independent experts
It is best practice for the policies and procedures of OSPs to require higher levels of management approval when accepting new higher risk clients and for them to review these relationships more frequently
Reliance on introducers
In some jurisdictions where business is introduced (for example by another company within the group or by a trusted third party such as a banker or adviser), the regulations provide hat reliance may be placed upon the introducer to undertake customer identification and verification
In these cases, the OSP may obtain a introducer's certificate from the introducer instead of obtaining the usual customer due diligence documentation
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In some jurisdictions they can only do so subject to having assessed the risk inherent in choosing to place reliance on the introducing party concerned. Not all OSPs place reliance on their introducers in this way
In some jurisdictions such as the Isle of Man, there is a requirement to regularly test that the introducer's procedures and compliant
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