Stuttgart|- A guest Essay from Dr. Steffen Gutjahr, Head of Compliance Solutions at Cellent Finance Solutions GmbH, published in the online Edition of Compliance Magazine on August 19, 2015
"Do you know your customer?"Know Your Customer (KYC) and the associated implications for the compliance
With the adoption of the 4th EU Money Laundering Directive, financial institutions have assumed the obligation to implement appropriate measures to counteract money laundering according to the respective compliance risk, for the entire duration of the customer relationship. These so-called due diligence requirements, which are essentially the responsibility of the compliance department, have a significant impact on the operational units of the company. This is clearly illustrated by the KYC process example.
Legal framework conditions promote the implementation of the risk-based approach
On June 25, 2015 the 4th EU Money Laundering Directive came into force, which now supports the risk-based approach within the financial industry to an even greater degree. The Member States now have a deadline of two years for the transitioning of the new policies into national legislation. The most comprehensive changes will affect the risk-based approach required by the third EU Money Laundering Directive, which will now have an even greater significance. The duty of the compliance will be to assess the risk associated with individual customers regarding money laundering, and to define appropriate due diligence obligations for the monitoring. In this case, the rule of thumb is: The higher the potential risk associated with the customer, the more scrutiny should be applied for the monitoring.
Usually, the appropriate procedure is referred to as the KYC process, whereas a distinction is made between the customer acceptance (Onboarding Customer Due Diligence) as a one-time process, and the ongoing monitoring (Ongoing Customer Due Diligence).