When verifying a customer's identity, it can often be tempting to practice something called simplified due diligence. This is the lowest form of due diligence you can conduct when validating a client's identity. This level of due diligence is usually only appropriate when you know this client presents little to no opportunity of being involved in money laundering, terrorist financing, and financial crime, a full risk assessment should always be taken when unsure of identifying all the risk factors.
Often these clients are people you may know or have the knowledge of; simply meeting face to face or over video call can be enough for you to be sure of them. However, can you ever be truly sure about new and existing clients? The best practice is always to conduct the highest level of due diligence possible when going through the know your customer (KYC) and anti-money laundering (AML) regulations. You can never fully understand a client's risk to your business and the UK economy.
Simplified due diligence can be appropriate in the right circumstances, but advanced due diligence is always recommended. If, as a business, you become satisfied that a client falls into the simplified due diligence criteria, the only thing you need to do legally is to identify that client. This is a requirement with all legal and financial institutions.
There is no requirement to verify your client's identity through proof of identity documents such as a passport or driver's licence; this would usually be accompanied by a letter or bank statement with the registered address. However, if the client no longer falls into this bracket, this will create a requirement for your client to undergo further checks and verification.
There are many factors to look out for when determining if a client and their situation are low-risk. This first is;
If a client is looking at buying a house, for example, this is a high-risk situation, and, therefore, a higher level of due diligence must be performed.
If your client is individual seeking advice, acting on behalf of themselves, this is generally considered low risk; this person might be known to you or others in the firm.
If the client is required to provide information regarding ownership structure or acts on behalf of a business, they would be subject to money laundering regulations.
Clients' situations should constantly be monitored, and if a change in circumstance would suggest additional due diligence is needed, it is a firm's legal and required responsibility to do so.
For a detailed list of Who qualifies for simplified due diligence, visit my lawyer here.
The most effective way to limit the risk to your business is always to verify the clients you work with. This can sometimes slow down the onboarding process and frustrate you and your new clients. Legal software, such as Validient, not only automates the KYC know your customer and AML anti-money laundering checks but also speeds the process up and reduces the cost of performing these checks yourself.
The other benefit is that we operate at the highest possible level of due diligence, meaning every legal requirement is met; we monitor your clients for you and screen for any changes.
We also onboard and check businesses, identifying the beneficial owner and ownership structure and monitoring them for any insolvencies, bankruptcies and other customer activities. We give you the information and tools to make your best judgement and make an informed decision on new and existing clients.
Under the right circumstances, a business can perform simplified due diligence if they know or believe their client falls within specific parameters that permit it; in these circumstances, simplified due diligence often poses no risk and can lead to quicker business.
There are cases where clients are not only legally required to undergo higher levels of due diligence, but as a business, you may also be unsure about them. In this scenario, additional checks should always be performed in order to prevent money laundering and terrorist financing.
Automating these checks not only delivers more accurate results but is quicker than manually and reduces the cost to verify the identity of clients. We at Validient have built our product around user experience and identifying and verifying people accurately and quickly while operating at the highest due diligence process. We follow all Know Your Customer kyc requirements and kyc compliance. To learn more about how we do this, you can read here. For more information, please feel free to book a demo or email firstname.lastname@example.org.