13.1 What is CDD?
CDD, sometimes referred to as “know your customer” (KYC), is the collective term for the checks businesses must do on their customers and, where applicable, beneficial owners. There are different levels of due diligence measures which need to be applied dependent on the degree of risk associated with the type of customer, business relationship, product, or transaction. In certain lower risk situations, simplified due diligence may be applied (AMLG11500), while enhanced due diligence is required in certain higher risk cases (AMLG11700). In any case, the measures should be sufficient to obtain a picture of the money laundering, terrorist financing and proliferation financing risk associated with the customer and effectively mitigate and manage that risk. You must be able to demonstrate to HMRC that the extent of the CDD measures you take are appropriate to the risk of money laundering, terrorist financing and proliferation financing to which your business is exposed.
Who is your customer?
Understanding who is your customer, is crucial to defining your CDD obligations under the Regulations. Who your customer is can vary for each supervised sector. For guidance on the meaning of customer, please see the sector-specific guidance in Part 2.
13.2 What does CDD involve
Full details of the CDD requirements under the Regulations are set out in AMLG11400 but the key requirements include the following:
- Identifying all customers and verifying their identity through identity documents, such as a passport, official corporate documents, or electronically. For further information on what action is required to check and verify your customers identity see AMLG11400.
- Where applicable, identifying all beneficial owners of your customers and taking reasonable measures to verify their identity. For further information on CDD and beneficial owners see AMLG11400.
- Taking reasonable measures to understand the ownership and control structure of a customer that is a legal person, trust company, foundation or similar legal arrangement.
- Assessing and where appropriate, obtaining information on the purpose and intended nature of the business relationship or occasional transaction, for example, the source of funds and source of wealth, the purpose of transactions and so on.
- Conducting ongoing monitoring of the business relationship, to ensure transactions are consistent with what the business knows about the customer and the business’s risk assessment and confirming, on a risk-based approach, the source and origin of funds that your customer will be using in the relationship.
- Retaining records of these checks and updating them when there are changes.
Identifying and verifying the identity of any person purporting to act on behalf of a customer and verifying they are authorised to do so.
Where the customer is a business that carries on regulated activity, HMRC also expects you to check that the customer is supervised for anti-money laundering purposes.
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Important note:
‘Reasonable measures’ means risk-based, proportionate and effective in mitigation of the identified money laundering and terrorism financing risks. You should consider whether you are comfortable that you would be able to demonstrate and evidence the extent to which you have sought such information and verification to HMRC upon request. |
13.3 What are the mandatory CDD requirements?
Whilst the risk-based approach gives you some discretion to decide the extent and nature of the CDD measures that you apply, there are certain mandatory requirements under the Regulations that you must comply with.
You must:
- Complete CDD on all customers and beneficial owners when establishing a business relationship.
- Complete CDD when carrying out an occasional transaction that amounts to a transfer of funds exceeding £800. This applies even if...
