Key Components of Customer Due Diligence | AML UAE

The UAE AML regulations mandate that the regulated entities – Financial Institutions, DNFBPs, and VASPs- apply Customer Due Diligence measures before establishing a business relationship or executing a transaction with the customer.

Customer Due Diligence is a crucial element of the AML CFT Program that assists the entities in identifying the risk the customers pose to the business and effectively managing such exposure.

In this video, we shall discuss the key elements of the CDD process necessary to design and implement the Customer Due Diligence process efficiently.

Know Your Customer, or we generally refer to it as “KYC”, is a process involving identifying the customers and their Ultimate Beneficial Owners (UBOs) and verifying their identities using reliable, independent sources.

KYC also includes inquiries to ascertain additional details like the customer’s occupation, contact details, address, status as a Politically Exposed Person or association with PEP, the purpose of the transaction or proposed business relationship, etc.

Once the identification details about the customer are available, the regulated entity must screen the customers and UBOs against the Sanctions List, to determine the presence of any designations related to the customer. UAE regulations mandate the screening of customers against the UAE Local Terrorist List and the UNSC Consolidated List. Additionally, it is crucial to conduct screening against the relevant international lists to identify and manage the risk associated with internationally sanctioned persons.

Additionally, screening is crucial to verify and establish if the person or the beneficial owners are PEPs or not. Scanning should also be extended to check for any negative media or adverse news against the customer, that may impact the risk arising from the business relationship.

With the customer’s identity information and the screening results, the regulated entity must proceed with determining the customer risk profile. The customer risk assessment must consider factors like:

• The customer’s location
• Business activities
• Purpose of a transaction
• Status as PEP
• Presence of adverse media, etc.

Based on such risk assessment, the customers must be categorised as Low, Medium, or High. This risk classification shall assist the regulated entities in determining the nature of overall Customer Due Diligence to be applied.

If the customer is assessed to pose a higher ML/FT risk to the business, the regulated entities must apply Enhanced Due Diligence measures. EDD is an extended version of normal CDD - where certain additional checks and verification measures are applied, such as making inquiries about the customers’ financial position, establishing the legitimacy of customers’ source of funds and wealth, and obtaining management approval for starting a relationship with such high-risk customers.

Further, when applying EDD, the entity must ensure that the first payment towards the transaction with such customers is received from their own account, with a bank following similar CDD standards.

CDD process does not end with the completion of the customer onboarding process. Instead, it is an ongoing activity involving regular review of the customer’s identification details and other information to ensure that the initially assessed customer risk remains valid, and if there is any change impacting the overall risk, necessary mitigation measures can be applied immediately.

Further, ongoing monitoring also includes continuous monitoring of the customer’s transactions to check whether the same aligns with the customers’ profile and if not, suspicious activities or inconsistencies in customer behaviour are identified promptly.

CDD, when applied effectively and comprehensively, can serve as a critical tool to detect and deter the business’s exploitation by financial criminals.

Trust this video helps develop a robust CDD Program and strengthen the businesses’’ overall AML efforts.

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Timestamps:
0:00 Introduction on Key Components of Customer Due Diligence
0:37 What is KYC?
1:10 When should the regulated entities screen the customers?
1:57 What is customer risk assessment and its factors?
2:37 What is EDD?
3:21 What is ongoing monitoring?
4:00 brief on CDD
4:10 Conclusion and regards

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