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Written by Roland Guennou on Friday February 19, 2016
New EU Guidelines on Risk Factors and Simplified and Enhanced CDD: It’s all about the risk-based approach so get ahead with the ICA
The 4th EU Money Laundering Directive ratified in June 2015 (Directive (EU) 2015/849) requires European Supervisory Authorities (ESAs)* to issue by the implementation date (June 2017) specific guidelines on the identification of customer due diligence (CDD) risk factors to be used in anti money laundering/counter financing of terrorism (AML/CFT) risk assessment and on the application of simplified or enhanced customer due diligence measures (Art 17 and 18).
This is part of a broader set of measures institutionalising the adoption of a risk-based approach to CDD**.
Here’s what you should know.
What the guidelines cover
The draft guidelines were released for consultation by the Joint Committee of the European Supervisory Authorities in October 2015 and a public hearing was held in London on 15 December 2015 at the European Banking Authority’s offices. The consultation closed on 22 January 2016 with both the proposed guidelines and responses from industry bodies and firms available on the EBA website. The consultation process also includes a paper on risk-based supervision by national authorities.
The guidelines first lay out what risk factors firms should be taking into account when assessing money laundering risks grouped around four categories of customer, country, product and channel (see chart).
They then articulate how due diligence measures can be tailored for simplified or enhanced due diligence around the timing and quantity of CDD information, depth of verification, frequency of reviews and levels of approval.
Title II is generic while Title III offers sector-specific guidance across an interesting range of activities
While the guidelines are broadly consistent with current market best practices – at least amongst large institutions – they represent a welcome evolution in the EU AML/CFT regulatory framework in that:
On the other hand market participants will be keen to hear more from European authorities on:
The need for robust CDD qualification
Amongst the challenges on the journey towards a comprehensive risk-based approach to CDD, firms will be required to uplift their training and competence capabilities in view of the following.
Get ahead with the ICA
The ICA Advanced Certificate in Practical CDD launched in September 2015 provides a readily available first answer to these challenges to all financial services professionals involved in or impacted by CDD challenges.
This intermediate level course focuses on the core outcomes of customer due diligence and in particular the risk-based assessment of the acceptability of customer relationships.
It provides a hands-on learning journey through all key CDD disciplines of ID&V, understanding the customer’s profile and the purpose of the relationship, unwrapping ownership and control structures, performing sanctions, politically exposed persons (PEPs) and adverse media screening.
Based on a highly interactive, end-to-end case study, the course culminates in a complete risk assessment exercise illustrating the dynamics of analysing a wide range of risk factors.
For further information on this innovative new qualification, please visit the course’s home page.
What do YOU think are the challenges with the implementation of the 4th Directive’s approach to risk-based CDD? Share your views by submitting your comments below.
(*) European Banking Authority (EBA), European Securities and Markets Authority (ESMA), European Insurance and Occupational Pensions Authority (EIOPA)
(**) The changes to the Directive to further institutionalise the adoption of a risk-based approach to customer due diligence also include the following.
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