CBB Volume 4: Contents
FC-1.1 General Requirements
Verification of Identity and Source of Funds
Investment firm licenseesG must establish effective systematic internal procedures for establishing and verifying the identity of their customers and the source of their funds. Such procedures must be set out in writing and approved by the investment firm licensee'sG Board of Directors and senior managementG (as applicable) and must be strictly adhered to.Amended: October 2014
FC-1.1.2(a) [This Sub-paragraph was deleted in July 2018];(b) Establishing business relations with a new or existing customer;(c) A change to the signatory or beneficiary of an existing account or business relationship is made;(d) Customer documentation standards change substantially;(e) The licenseeG has doubts about the veracity or adequacy of previously obtained customer due diligence information;(f) A significant transaction takes place;(g) There is a material change in the way that an account is operated or in the manner in which the business relationship is conducted; or(h) There is a suspicion of money laundering or terrorist financing.Amended: July 2018
Amended: January 2007
Investment firm licenseesG must understand, and as appropriate, obtain information on the purpose and intended nature of the business relationship.Added: October 2014
Investment firm licenseesG must conduct ongoing due diligence on the business relationship, including;(a) Scrutinizing transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution's knowledge of the customer, their business and risk profile, including, where necessary, the source of funds; and(b) Ensuring that documents, data and information collected under the CDD process is kept up-to-date and relevant, by undertaking reviews of existing records, particularly for higher risk categories of customers.Amended: October 2017
Added: October 2014
For the purposes of this Module, 'customer' includes counterparties such as financial markets counterparties, except where financial institutions are acting as principals where simplified due diligence measures may apply. These simplified measures are set out in Section FC-1.8.Amended: January 2007
The CBB's specific minimum standards to be followed with respect to verifying customer identity and source of funds are contained in Section FC-1.2, with further explanations provided in Guidance Notes (see Supplementary Information, item FC-(v), in Part B of Volume 4). Enhanced requirements apply under certain high-risk situations: these requirements are contained in Sections FC-1.3 to FC-1.5 inclusive. Additional requirements apply where a licenseeG is relying on a professional intermediary to perform certain parts of the customer due diligence process: these are detailed in Section FC-1.6. Simplified customer due diligence measures may apply in defined circumstances: these are set out in Section FC-1.8.Amended: January 2007
Verification of Third Parties
Investment firm licenseesG must obtain a signed statement from all new customers (or for one-off transactions above the BD 6,000 threshold) confirming whether or not the customer is acting on their own behalf or not. This undertaking must be obtained prior to conducting any transactions with the customer concerned.
Where a customer is acting on behalf of a third party, the licenseeG must also obtain a signed statement from the third party, confirming they have given authority to the customer to act on their behalf. Where the third party is a legal person, the licenseeG must have sight of the original Board resolution (or other applicable document) authorising the customer to act on the third party's behalf, and retain a certified copy.
Investment firm licenseesG must establish and verify the identity of the customer and (where applicable) the party/parties on whose behalf the customer is acting, including the Beneficial Owner of the funds. Verification must take place in accordance with the requirements specified in this Chapter.
Where financial services are provided to a minor or other person lacking full legal capacity, the normal identification procedures as set out in this Chapter must be followed. In the case of minors, investment firm licenseesG must additionally verify the identity of the parent(s) or legal guardian(s). Where a third party on behalf of a person lacking full legal capacity wishes to open business relations, the licensee must establish the identity of that third party as well as the person conducting the business.Amended: January 2007
Anonymous and Nominee Accounts
Investment firm licenseesG must not establish or keep anonymous accounts or accounts in fictitious names. Where investment firm licenseesG maintain a nominee account, which is controlled by or held for the benefit of another person, the identity of that person must be disclosed to the licenseeG and verified by it in accordance with the requirements specified in this Chapter.
Timing of Verification
Investment firm licenseesG must not commence a business relationship or undertake an occasional transaction (above the threshold) with a customer before completion of the relevant customer due diligence ('CDD') measures specified in Chapter FC-1. However, verification may be completed after receipt of funds in the case of non face-to-face business, or the subsequent submission of CDD documents by the customer after initial face-to-face contact, providing that no disbursement of funds takes place until after the requirements of this Chapter have been fully met.
Incomplete Customer Due Diligence
Where a licenseeG is unable to comply with the requirements specified in Chapter FC-1, it must consider whether to terminate the relationship or not proceed with the transaction. If funds have been received, these must be returned to the counterparty in the same method as originally received. If it proceeds with the transaction (to avoid tipping off the customer), it should additionally consider whether it should file a suspicious transaction report (STR).Amended: October 2015
Amended: July 2010
See also Chapter FC-4, which covers the filing of suspicious transaction reports. Regarding the return of funds to the counterparty, if funds are received in cash, funds should be returned in cash. If funds are received by wire transfer, they should be returned by wire transfer.Amended: October 2014