Onboarding Clients; the risk of insufficient Client Due Diligence

The largest regulatory fines over the last ten years have hit firms who have failed to conduct proper Customer Due Diligence (CDD) and Anti-Money Laundering (AML) checks. Countries, as well as firms, are being scrutinised in the global fight against money laundering and terrorist financing and this is, therefore, the number one area of focus for all regulators. Failing to conduct proper AML checks allows your Firm to potentially be used to further money laundering and terrorist financing which itself impacts the reputation of the region.

Many of the regulatory actions against firms have found no evidence that money laundering or terrorist financing has occurred, it is the weaknesses in the onboarding policies and procedures themselves, or in their execution, that has led the Regulator to take action.

Whilst many firms focus purely on the AML risk there is more to the onboarding process, including classifying your Client to determine what level of protections they are entitled to. This classification can then have a significant impact on the relationship, level of service and risk assessment of that Client and should form part of your CDD.

What is the difference between AML and CDD?

CDD is a much wider process than pure AML, and a large number of regulatory actions against financial services firms are around client onboarding, including the lack of CDD.
On paper you may have all the documents for AML purposes but do you really know your customer? Your CDD process should look at the type of business, type of transaction, risk assessment and then the regulatory obligations and protections required. Client Classification, Suitability and clear documentation setting out the relationship between your Firm and your Clients, including charges and scope of services, are all important and should be evidenced in your CDD.

Making your client onboarding process robust

We can support your onboarding team to ensure that your Clients are correctly onboarded in line with the regulator's expectations, your own internal policies and procedures and relevant Conduct of Business Rules regarding Client Classification.

Our Client onboarding reviews include:

  • A full review of your client onboarding and client classification procedures, making recommendations as necessary
  • Using your procedures or any revised procedures, our consultants will back review all of your client files to check for gaps which you need to fix
  • Checking that client documentation and consents are auditable and meet the regulatory requirements
  • Providing training on your onboarding policies at all levels throughout your Firm.

What should you do now?

To discuss how our Client Due Diligence Reviews work for your Firm and for assurance that your Client Due Diligence Process is effective and compliant, contact our team of Compliance Consultants.

We have a dedicated team of experienced compliance consultants who can provide expert assurance and peace of mind. Get in touch to see how we can help your Firm.