MORNBFI Vol. 1 - Planters Development Bank

APP. Q-23-c08.12.31CUSTOMER DUE DILIGENCE FOR BANKS AND QUASI-BANKS1. Customer acceptance policyQBs should develop clear customeracceptance policies and procedures,including a description of the types ofcustomer that are unacceptable to QBmanagement. In preparing such policies,factors such as customers’ background,country of origin, public or high profileposition, business activities or other riskindicators should be considered. QBsshould develop graduated customeracceptance policies and procedures thatrequire more extensive due diligence forhigh risk customers. For example, thepolicies may require the most basicaccount-opening requirements for aworking individual with a small accountbalance, whereas quite extensive duediligence may be deemed essential for anindividual with a high net worth whosesource of funds is unclear. Decisions toenter into business relationships with highrisk customers, such as individuals holdingimportant/prominent positions, public orprivate (see below), should be takenexclusively at senior management level.2. Customer identificationCustomer identification is an essentialelement of KYC standards. A customer isdefined as any person or entity that keepsan account with a quasi-bank and anyperson or entity on whose behalf anaccount is maintained, as well as thebeneficiaries of transactions conducted byprofessional financial intermediaries.Specifically, a customer should include anaccount-holder and the beneficial ownerof an account. A customer should alsoinclude the beneficiary of a trust, aninvestment fund, a pension fund or acompany whose assets are managed by anasset manager, or the grantor of a trust.QBs should establish a systematicprocedure for verifying the identity of newcustomers and should never enter abusiness relationship until the identity of anew customer is satisfactorily established.QBs should “document and enforcepolicies for identification of customers andthose acting on their behalf” 1 . The bestdocuments for verifying the identity ofcustomers are those most difficult to obtainillicitly and to counterfeit, such as passport,driver’s license or alien certificate ofregistration. Special attention should beexercised in the case of non-residentcustomers and in no case should a QB shortcircuitidentity procedures just because thenew customer is unable to present himselffor interview. The QB should always askitself why the customer has chosen to openan account in a foreign jurisdiction.The customer identification processapplies naturally at the outset of therelationship, but there is also a need toapply KYC standards to existing customeraccounts. Where such standards havebeen introduced only recently and do notas yet apply fully to existing customers, arisk assessment exercise can beundertaken and priority given to obtainingnecessary information, where it isdeficient, in respect of the higher risk cases.An appropriate time to review theinformation available on existing customersis when a transaction of significance takesplace, or when there is a material changein the way that the account is operated.However, if a QB is aware that it lackssufficient information about an existinghigh-risk customer, it should take steps to1Core Principles Methodology, Essential Criterion 2.Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-23-c - Page 1