1The central objective of EDD is to enable a bank to better understand the risks associated with a high-risk customer and make an informed decision about whether to on-board or continue the business relationship or carry out the occasional transaction. It also helps the bank to manage the increased risk by deepening its understanding of the customer, the beneficial owner, and the nature and purpose of the relationship.
The extent of EDD must be commensurate with the risk associated with the business relationship or occasional transaction but banks can decide, in most cases, which aspects of CDD they should enhance.
Senior management should be provided with all relevant information (eg, source of wealth, source of funds, potential risks, adverse information and red flags) before approving PEP relationships to ensure they understand the nature of, and the risks posed by, the relationship they are approving.
Examples of effective EDD measures we observed included:
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• obtaining more information about the customer’s or beneficial owner’s business
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• obtaining more robust verification of the beneficial owner’s identity on the basis of information obtained from a reliable and independent source
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• carrying out searches on a corporate customer’s directors (or individuals exercising control) to understand whether their business or integrity affects the level of risk associated with the business relationship, for example because they also hold a public function
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• using open source websites to gain a better understanding of the customer or beneficial owner, their reputation and their role in public life – where banks find information containing allegations of wrongdoing or court judgments, they should assess how this affects the level of risk associated with the business relationship
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• establishing the source of wealth to be satisfied that this is legitimate – banks can establish the source of wealth through a combination of customer-provided information, open source information and documents such as evidence of title, copies of trust deeds and audited accounts (detailing dividends)
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• establishing the source of funds used in the business relationship to be satisfied they do not constitute the proceeds of crime
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• commissioning external third-party intelligence reports where it is not possible for the bank to easily obtain information through open source searches or there are doubts about the reliability of open source information, and
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• where the bank considers whether to rely on another firm for EDD purposes, it ensures that the extent of EDD measures is commensurate with the risk it has identified and that it holds enough information about the customer to carry out meaningful enhanced ongoing monitoring of the business relationship – the bank must also be satisfied that the quality of EDD is sufficient to satisfy the UK’s legal and regulatory requirements.
See regulation 7 of the Money Laundering Regulations.