(AML-CFT Decision Articles 4.2(b), 4.3(b), 7.2, 12)
The timely review and update of CDD information is a fundamental component of an effective ML/FT risk management and mitigation programme. FIs are obliged to maintain the CDD documents, data and information obtained on customers, and their Beneficial Owners or beneficiaries in the case of legal persons or arrangements, up to date. The AML-CFT Decision provides that FIs should update the CDD information on High Risk Customers more frequently, and that, in the absence of a ML/FT suspicion, FIs may update the CDD information of identified low-risk customers less frequently.
In order to be able to update the CDD information of customer in a risk-based manner, FIs should develop internal policies, procedures and controls in relation to the periodic or event-driven review and updating of CDD information. These policies and procedures should be reasonable and proportionate to the risks involved, and, in formulating them, FIs are advised to consider parameters such as:
| • | Circumstances, timing and frequency of reviews and updates. Generally, FIs should establish clear rules per customer risk category with respect to the maximum period of time that should be allowed to elapse between CDD reviews and updates of customer records. The expiry of a customer’s or Beneficial Owner’s identification documents is a circumstance that call for updating the customer information. Changes in legislation or internal procedures are also a cause for reviewing and updating customer files.
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| • | Additionally, FIs should also establish clear rules with respect to circumstances that would trigger an interim or event-driven review, or the acceleration of a particular customer’s review cycle. Circumstances or events that might trigger an interim review include:
| - | Discovery of information about a customer that is either contradictory or otherwise puts in doubt the appropriateness of the customer’s existing risk classification or the accuracy of previously gathered CDD information; | | - | Material change in ownership, legal structure, or other relevant data (such as name, registered address, purpose, capital structure) of a legal person or arrangement; | | - | Initiation of legal or judicial proceedings against a customer or Beneficial Owner; | | - | Finding materially adverse information about a customer or Beneficial Owner, such as media reports about allegations or investigations of fraud, corruption or other crimes; | | - | Qualified opinion from an independent auditor on the financial statements of a legal entity customer; | | - | Transactions that indicate potentially unusual or suspicious transactions or activities.
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| • | Components and extent of reviews and updates. In keeping with the nature and size of their businesses, FIs should clearly define the moments, contents and extent of CDD reviews for Business Relationships in different risk categories, including which data elements, documents, or information should be examined and updated if necessary. In this regard, FIs are advised that tools such as checklists and procedural manuals will help to enhance the effectiveness of CDD reviews and updates. Examples of procedures might include, but are not necessarily limited to:
| - | When the source of wealth or the source funds of a customer should be verified; | | - | When additional inquiries or investigations should be made pertaining to the nature of a customer’s business, the purpose of a Business Relationship, or the reasons for a transaction; | | - | How much of a customer’s transactional history, including how many and which specific transactions or transaction types, should be reviewed as part of a periodic or an interim review.
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| • | Organisational responsibilities. In keeping with the nature and size of their businesses, FIs should consider clearly defining the relevant organisational arrangements in relation to the CDD review and update process. Examples of such responsibilities might include, but are not necessarily limited to:
| - | Carrying out reviews and updates; | | - | Escalating and/or reporting situations in which risk classifications should be changed, Business Relationships should be suspended or terminated, or potentially unusual or suspicious activities should be further investigated; | | - | Approving or rejecting reviews of Business Relationships (including senior management involvement with regard to PEPs and other High Risk Customers); | | - | Undertaking CDD file remediation measures when necessary; | | - | Auditing the quality of CDD reviews and updates; | | - | Maintaining records with regard to CDD reviews and updates, in accordance with statutory record-keeping requirements (see Section 9, Record Keeping).
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