As part of their duties to combat money laundering and terrorism financing, financial institutions have the duty to conduct Customer Due Diligence (CDD) by proceeding with the identification and verification of a customer’s identity. The inadequacy or absence of satisfactory CDD measures can subject a financial institution to serious risks such as reputational, operational, legal and regulatory risks and, which may result in significant financial costs to the institution. In this respect, in order to help them carry out their CDD exercises properly, Financial Institutions may rely on third parties.
Third Party Reliance may be defined as the process whereby a financial institution is relying on a third party based on several criteria to obtain information relating to their clients. Though it may sound like any other business relationship, in a third-party reliance scenario, the third party is regulated, supervised, monitored and subjected to CDD requirements as per Section 17C of the FIAMLA. Third party reliance is also subjected to record keeping requirements pursuant to section 17F of the FIAMLA and Regulation 21 of the FIAML Regulations 2018.
Where reliance is placed on a third party for elements of CDD, the financial institution must ensure that the identification information sought from the third party is adequate and accurate. Additionally, the CDD information has to be submitted immediately in line with section 17D of the FIAMLA upon onboarding although the documents can be provided upon request at a later date.
Furthermore, as per the FATF recommendations and the FSC Code, where third party reliance is permitted, the ultimate responsibility for CDD measures remains with the financial institution relying on the third party and the following are some criteria that should be met:
- A financial institution relying upon a third party should immediately obtain the necessary information concerning CDD elements.
- The relationship between the financial institution and the third party should be subjected to a contractual agreement
- Financial institutions should take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to the CDD requirements will be made available from the third party upon request without delay.
- The financial institution should satisfy itself that the third party is regulated, supervised or monitored for, and has measures in place for compliance with, CDD and record-keeping requirements.
- When determining in which countries the third party that meets the conditions can be based, countries should have regard to information available on the level of country risk. As per Section 21 of the FIAML Regulations 2018, reliance should not be placed on third parties based in high risk jurisdictions; namely Iran and North Korea.
Lastly, the FSC also recommends that regular assurance testing is carried out in respect of the third party arrangements, to ensure that the CDD documents can be retrieved without undue delay and that the documentation received is sufficient pursuant to section 17(2)(v) of the FIAMLA.
How Can Temple Consulting Help You?
Temple Consulting specialises in the provision of Compliance Support Services to firms which are licensed by the Financial Services Commission or the Bank of Mauritius, and other companies with specific requirements under anti-money laundering legislations. The company is a trusted partner that helps in customer onboarding exercises and due diligence including ongoing monitoring and client screenings.
Kindly contact us on +230 210 3588 or [email protected] for more details.
