PROFESSIONAL INDEPENDENT ADVISERS LTDcompliance-officer.co.uk/p-i-a/PDFS/ML Procedures Jan 11.pdf · The MLRO has to make sure that Professional Independent Advisers Limited complies

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PREVENTION OF MONEY LAUNDERING AND COMBATING TERRORIST FINANCING (PML & CTF) PROCEDURES PROFESSIONAL INDEPENDENT ADVISERS LTD – JAN 11

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PREVENTION OF MONEY LAUNDERING AND COMBATING TERRORIST FINANCING

(PML & CTF)

PROCEDURES

Money Laundering Reporting Officer is

Mike Bandurak

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CONTENTS

SECTION 1 INTRODUCTION

1.1 What does this manual tell you about?

SECTION 2 AWARENESS

2.1 The role of the MLRO

2.2 UK Laws and Regulations 2.2.1 The Money Laundering Regulations 2.2.2 The FSA’s role 2.2.3 The Joint Money Laundering Steering Group

2.3 Suspicions 2.3.1 Suspicions of tax evasion 2.3.2 Common adviser/client scenarios 2.3.3 Consent to proceed

2.4 The suspicion spectrum.

2.5 Penalties

2.6 The principal Money Laundering offences 2.6.1 What offences am I most at risk of committing?

2.7 Regulatory non-compliance

2.8 Procedures to protect you

SECTION 3 SUSPICIOUS ACTIVITIES – HOW TO REPORT THEM

3.1 The Requirement to Report Suspicious Activity 3.1.1 JMLSG 6.1 states 3.1.2 Suspicious activity reporting procedures 3.1.3 Who should I send an ISR to? 3.1.4 Investigation of internal suspicion reports 3.1.5 How are external reports made?

3.2 When should I ask for consent to proceed with a prohibited act?

3.3 Tipping off

3.4 Making the report

3.5 Protection from prosecution

3.6 Compliance with Production Orders

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SECTION 4 WHAT ARE THE CUSTOMER DUE DILIGENCE REQUIREMENTS?

4.1 The high level requirements

4.2 General principles

4.3 Existing customers

4.4 Source of funds

SECTION 5 SATISFYING THE CDD REQUIREMENTS

5.1 A reminder of what is included in the term CDD

5.2 The risk based approach

5.3 Standard CDD (for reduced and intermediate level risk products)

5.4 Increased risk CDD

5.5 Identifying your client and verifying that identity 5.5.1 Verification using documentation 5.5.2 What documents can I use 5.5.3 Electronic verification 5.5.4 Verification for pension sales

5.6 Reliance on other firms to complete verification 5.6.1 Verification Requirements

5.7 Isle of Man based providers 5.7.1 Suitable Certifiers 5.7.2 Form of Certification.... 5.7.3 Verifying Source of funds/wealth for Isle of Man based providers

5.8 Understanding the purpose and nature of the business relationship 5.8.1 The business relationship and cause for suspicion 5.8.2 Risk factors

5.9 Monitoring

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SECTION 6 BUSINESS THAT COULD POSE A GREATER RISK

6.1 Execution only and direct offer business

6.2 Non Face-to-Face Verification Using Documentation 6.2.1 Receiving Documents by Post 6.2.2 Electronic Verification for non face-to-face business 6.2.3 Certification of Documentation 6.2.4 Additional Requirements to Guard Against Identity Fraud

6.3 Non UK residents 6.3.1 Verifying non-UK residents 6.3.2 What CDD is required?

6.4 Politically Exposed Persons (PEPs) 6.4.1 UK PEPs 6.4.2 Foreign PEPs

SECTION 7 SPECIAL CDD SCENARIOS – PRIVATE CLIENTS

7.1 Policies for children 7.1.1 Stakeholder pensions for children 7.1.2 Child trust funds 7.1.3 Students 7.1.4 Prisoners and those on probation 7.1.5 Third party scheme 7.1.6 The mentally incapacitated 7.1.7 Asylum seekers 7.1.8 Economic migrants 7.1.9 Refugees who are not on state benefits 7.1.10 Travellers

7.2 The financial exclusion process

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SECTION 8 CARRYING OUT CDD FOR CORPORATE CLIENTS

8.1 Introduction 8.1.1 A reminder of what is included in the term CDD 8.1.2 The risk based approach

8.2 Identifying and verifying the identity of a corporate client 8.2.1 Public Listed Companies 8.2.2 Subsidiaries of PLCs 8.2.3 Private and unlisted companies 8.2.4 Establishing the identity of lawyers and accountants 8.2.5 Clubs and societies 8.2.6 Charities in England, Wales and Scotland 8.2.7 Charities in Northern Ireland 8.2.8 Church bodies 8.2.9 Schools and colleges 8.2.10 Local authorities, government departments and universities

8.3 Verification of trusts 8.3.1 Higher risk trusts 8.3.2 Life policies in trust

8.4 Variation of powers of attorney and third party mandate arrangements

SECTION 9 NATIONAL & INTERNATIONAL FINDINGS

9.1 What does the guidance require?

9.2 The Financial Action Taskforce (FATF) Non-Co-operative Countries

9.3 Financial sanctions targets/terrorist list

SECTION 10 TRAINING

10.1 Where can I find guidance on staff training?

10.2 Awareness

10.3 Training 10.3.1 Who needs to be trained? 10.3.2 How do I assess what level of training is required? 10.3.3 What Should the Training Cover? 10.3.4 In what form should the training be delivered 10.3.5 How often do you need to provide the training?

10.4 What Records do I Need to Keep?

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SECTION 11 RECORD KEEPING

11.1 What records do I need to keep of customer due diligence?

11.2 What are the Retention Timescales?

11.3 Repeat Business Verification

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SECTION 1

Introduction

1.1 What does this manual tell you about?

This manual contains information on the procedures that staff within Professional Independent Advisers Limited’s should follow in relation to the prevention of Money Laundering (PML) and Combating Terrorist Financing (CTF.) It also contains Professional Independent Advisers Limited’s guidance for dealing with cases of suspected fraud. The manual contains important information for all advisers – designated investment (DI) advisers, mortgage advisers and general insurance (GI) advisers. Throughout this manual the term ‘financial adviser’ will refer to all types of adviser, DI, mortgage and GI. A copy of this manual is available to everyone, including non-advising staff.

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SECTION 2

Awareness

Because you work in the financial services industry, it is a legal requirement that you know what your responsibilities are to help prevent money laundering or terrorist financing. This section outlines the AML/CTF legislation and how this is regulated. It also tells you the penalties you could face if you fail to fulfil your AML/CTF obligations.

2.1 The role of the MLRO – Mike Bandurak

The MLRO has to make sure that Professional Independent Advisers Limited complies with the AML/CTF regulations and FSA rules relating to AML/CTF. This includes reviewing every internal suspicion report (ISR) initiated by Professional Independent Advisers Limited’s staff, and deciding whether the suspicion should be notified to the relevant authorities. This will usually be the Serious Organised Crime Agency (SOCA). Once an internal suspicion report is received, Professional Independent Advisers Limited MLRO will decide whether the suspicion should be reported to SOCA and whether it is appropriate to ask SOCA for consent to proceed with a prohibited act.

2.2 UK Laws and Regulations

2.2.1 The Money Laundering Regulations The Money Laundering Regulations make it a requirement for businesses captured by the legislation to have policies, procedures and controls in place to counter financial crime. As a financial services company, Professional Independent Advisers Limited is captured by the legislation. The Proceeds of Crime Act 2002 (PoCA) and various prevention of terrorism acts also add to the underlying legislation. The Key requirements of the regulations are:

to verify the identity of customers to exercise customer due diligence to make reports to the Serious Organised Crime Agency (SOCA) where

appropriate to provide training to staff and ensure they have an awareness of the

regulations; and to keep records

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2.2.2 The FSA’s role The Financial Services and Markets Act 2000 (FSMA 200) gives the FSA power to require firms to have anti money laundering systems and controls in place. The FSA’s money laundering rules can be found in the Systems and Controls (SYSC) sourcebook. The SYSC rules place overall responsibility for money laundering prevention within a firm at the highest level i.e. the directors and senior managers. In order to avoid a breach of the SYSC rules, anti-money laundering procedures and responsibilities should be clearly documented and communicated to management and staff. Professional Independent Advisers Limited should be able to demonstrate to the regulator that we have considered how money laundering might affect our business, and that we have tailored your procedures accordingly. As with all systems and controls, our policies and procedures should be reviewed regularly – particularly in the light of experience of real life criminal activity, changes in JMLSG guidance or of general communication from the FSA.

2.2.3 The Joint Money Laundering Steering Group The Joint Money Laundering Steering Group (JMLSG) is a body made up of a variety of industry groups, including AIFA, the BBA, the AMI and others. Its role is to provide guidance to practitioners on how to practically comply with the FSA rules and the underlying legislation. You can find this guidance in the JMLSG “Prevention of Money Laundering Guidance Notes for the Financial Sector” (more commonly referred to as the “JMLSG Guidance Notes”). You can access these notes from the JMLSG website. They contain the guidance upon which much of the industry’s standard practice derives. A copy can be obtained from Rob Abbott. The JMLSG notes are afforded a status above simple “guidance” by two elements of the rules and legislation. Firstly, FSA express that they will consider whether their higher level rules have been complied with by reference to a firm’s compliance with the JMLSG notes. The JMLSG notes essentially become compliance with FSA rules by proxy. Conversely, if you don’t follow the JMLSG guidance, there is a reasonable chance that you will fall short of the FSA requirements in the process. Secondly, the Money Laundering Regulations require courts trying cases falling under the legislation to consider whether the individual or firm followed “relevant guidance that was issued by supervisory body, trade association, or other representative body…” The JMSLG guidance falls within this definition.

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2.3 Suspicions

Below we give an overview of the types of suspicion you are likely to encounter in your role as a financial adviser, we also summarise what you should do. More detail is given in the following sections of this guidance. If you know or suspect that any transaction or potential transaction could involve ‘criminal property’ you must make an ISR to Professional Independent Advisers Limited MLRO Mike Bandurak. There are different procedures that you should follow if you suspect that your client is trying to commit fraud. Please see section 2.3.2 for more details. 2.3.1 Suspicions of tax evasion SOCA has confirmed to the industry that all cases where there is a suspicion of tax evasion should be reported, regardless of how trivial the amounts may appear. This is because tax evasion gives rise to ‘proceeds of crime.’ There are no exceptions and no minimum amounts under the rules. So if, for example, you have a client who has an additional source of income that they are not declaring for tax purposes, you should terminate your relationship with them and make a report to Mike Bandurak. Only by taking this course of action can you protect yourself from committing an offence of money laundering.

2.3.2 Common adviser/client scenarios As a financial adviser, more often than not, you will be faced with one of the following situations:

(1) You meet with your (potential) client, you carry out your AML/CTF checks and your customer due diligence (CDD) and you are satisfied that your client is who they say they are, and, that the funds they are using for the transaction are legitimate. Or (2) You meet with your (potential) client, you carry out, or attempt to carry out, your AML/CTF checks and your CDD and for some reason, either because the client cannot provide satisfactory identification or because your CDD just doesn’t ‘stack up’ you have suspicions that your client might be involved in some sort of financial crime. Or

(3) You meet with your (potential) client and further to your AML/CTF and CDD checks you suspect that your client has provided you with inflated income figures or other false information in an attempt to secure a mortgage.

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We’ll now look at what you should do in each of these situations. In (1), all you have to do is make sure that you have identified your client, verified their identity and carried out the necessary Customer Due Diligence (CDD) checks. This includes the mandatory CDD but also includes your assessment of the particular transaction and the risk it poses. But in (2) you are either suspicious that your client is using the proceeds of crime or you know that they are using the proceeds of crime. The Money Laundering Regulations require you to carry out your CDD checks before you arrange any transactions for your client. So, normally you will be making the suspicion report BEFORE the transaction takes place. That being the case, you should not carry out any further business for the client and submit an ISR to the MLRO. This is because if you are suspicious that the money your client is going to pay into, for example, an investment bond, is the proceeds of crime, you may be guilty of the offence of ‘Arranging (PoCA 328) if you assist your client with the transaction. Alternatively, you should stop working for your client and submit an ISR asking for consent to proceed with the transaction. Usually however SOCA will refuse consent as basically you are seeking consent to carry out an act that constitutes an offence of money laundering. If for some reason your suspicion arises AFTER you have carried out the transaction, you should not conduct any further business for the client. You should still submit an ISR, but this should not ask for consent to proceed. This should only happen in exceptional circumstances, as technically you could find yourself having to explain to law enforcement why your suspicions only came to light after the business had taken place. In (3) above, although the client might be planning an act of fraud there are, at that point, no financial proceeds. Money laundering legislation relies on the existence of assets that are, or are suspected to be, the proceeds of criminal conduct or intended to support terrorism. So, in (3) a money laundering disclosure is not the correct vehicle for reporting this suspicion to the authorities. In cases where you suspect that your client is trying to fraudulently obtain a mortgage, you should stop doing business with them and report your concerns to the mortgage lender. 2.3.3 Consent to proceed If your report is in respect of an instruction which is received prior to a transaction or other activity taking place and you have a suspicion that it relates to money laundering, you should seek consent to proceed with the case. This means you have to make a disclosure to the Serious Organised Crime Agency (SOCA) prior to transacting the business and waiting for consent. Consent can arise in two ways – as follows: 1. Implicit Consent If you make a report to SOCA and they haven’t responded to you within 7 working days to inform you that consent has not been granted then you may assume consent has been granted and proceed. This “implicit” consent process is written into statute, and hence is as strong as an explicit consent.

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2. Explicit Consent If the circumstances are such that you simply can’t wait seven working days to obtain consent you can ask SOCA to provide you with “fast-track” explicit consent. You can achieve this by faxing your suspicious activity report to SOCA and then calling their duty desk on 020 7238 8282 and requesting fast track consent. It is an offence to continue with a transaction without obtaining consent. 2.4 The suspicion spectrum This is a process that can help you to decide whether you have suspicions that your client could be involved in money laundering or terrorist financing. This can sometimes be difficult to decide because ‘suspicion’ varies from one person to another. What seems perfectly normal to one person will seem suspicious to another. And, as the law requires you to make a report when you are suspicious, you need to listen to your own feelings about a situation and make a report when you are suspicious. It can help to consider a ‘suspicion spectrum;’ along these lines: Curiosity – unease – concern – suspicion – knowledge You should determine what the transaction, activity or situation makes you feel. If you progress as far as suspicion then you should make a report. You need to remember though that your suspicion must go beyond mere speculation and be based on some foundation. If you feel suspicious and yet you aren’t sure why you should think the matter through until you decide what caused your feeling. For example:

That a client ‘looks untrustworthy’ should not be considered a tenable foundation

That a client ‘was evasive when asked routine due diligence questions’ should be considered a tenable foundation.

You might find it useful to follow the following process to help you assess whether you have reasonable grounds to be suspicious.

Does you suspicion have a rational foundation that you can ‘put your finger on’?

Would another honest person, seeing what you saw and knowing what you know be suspicious?

If you decide against reporting, and later it turns out that it was money laundering, would you feel confident in explaining why you decided not to report?

In all cases you need to be able to defend yourself against a charge of failing to report. You must take all reasonable steps to understand your clients and the activities of your clients and report any suspicions promptly and in full as soon as they arise.

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2.5 Penalties

Remember, if you commit an offence of money laundering you don’t just face disciplinary action by the FSA, you are committing a crime punishable by up to 14 years imprisonment. So, you should ask yourself why, if you suspect that you are going to be involved in money laundering, would you want to continue your relationship with your client? The onus should be on the client to persuade you that they are who they say they are and that the source of their money is legitimate. It is quite acceptable for you to ask searching questions of the client if you are suspicious – there is no risk of ‘tipping off’ if this is done prior to making an ISR. For people working in financial services, there is no defence in claiming that you had no knowledge or suspicion of money laundering or terrorist financing if the circumstances were such that a reasonable person would have known or suspected that the funds could have been the proceeds of crime. The objective negligence test The test to be applied is whether a person has reasonable grounds to know or suspect that another person is engaged in money laundering. This reflects the view that people carrying out activities in the regulated sector should be expected to exercise a higher level of diligence in handling transactions and instructions than those employed in other business sectors.

2.6 The principal Money Laundering offences

There are three principal money laundering offences under PoCA 2002, i.e. the behaviour that directly constitutes money laundering. These are:

Concealing etc (PoCA s327) Arrangements (PoCA s 328) Acquisition (PoCA s 329)

There is also the offence of ‘Failure to disclose: regulated sector’ (PoCA s330)

2.6.1 What offences am I most at risk of committing? As financial advisers, there are two offences that you need to be aware of. The first, as mentioned above, is the offence of ‘Arranging (PoCA s328): “A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.”

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This is the main danger area for those providing financial services, as this description – helping people to acquire, retain, use and control their property (including their money) covers the work they do every day on behalf of legitimate clients. If you provide these services for clients who turn out to have criminal money, this is the offence that you will be committing. The phrase ‘enters into or becomes concerned in’ suggests that you do not have to participate in the arrangement, by setting it up or processing transactions, for example. Merely giving advice could be sufficient to commit this offence by ‘becoming concerned’. The second is the offence of ‘Failure to disclose: regulated sector’ (PoCA s330): A person commits an offence if each of the following three conditions are satisfied:

1) The first condition is that he:

knows or suspects, or has a reasonable grounds for knowing or suspecting, that another person is engaged

in money laundering. 2) The second condition is that the information or other matter- on which his knowledge or suspicion is based, or which gives reasonable grounds for such knowledge or suspicion, came to him in the

course of a business in the regulated sector.

3) The third condition is that he does not make the required disclosure as soon as is practicable after the information or other matter comes to him.” This offence was formulated to guard against people turning a ‘blind eye’ to money laundering by positively requiring them to report suspicions when there are reasonable grounds.

2.7 Regulatory non-compliance

The Money Laundering Regulations 2007 make a variety of offences that can be applied at firm level if you fail to implement the required processes and procedures. Essentially these require staff to be trained or made aware of money laundering, the identity of customers to be verified and records to be maintained. The maximum penalty is 2 years imprisonment or a fine or both (this applies to the staff concerned and to the firm). Example If you decided not to verify a customers identity (because, say, they had forgotten to bring documents to a meeting, and didn’t want to send them in the post) and proceeded with investment business you would have committed a criminal offence. FSA also have very broad powers to enforce compliance with the Money Laundering Regulations by nature of the content of their SYSC rules . This includes the power to fine or

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censure firms and the ability to pursue criminal charges where they think it is in the public interest to do so.

2.8 Procedures to protect you

If you or Professional Independent Advisers Limited became involved in a money laundering scandal you could be prosecuted. This may also damage the reputation of Professional Independent Advisers Limited. The following sections of this manual tell you the procedures you should put in place and follow so that Professional Independent Advisers Limited is not used by criminals to legitimise their funds through money laundering.

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SECTION 3

SUSPICIOUS ACTIVITIES – HOW TO REPORT THEM Understanding what a suspicious transaction might look like and correctly identifying and reporting them is a vital aspect of the money laundering regime. This chapter considers what kind of transactions or circumstances might lead you to be suspicious.

3.1 The Requirement to Report Suspicious Activity

The Proceeds of Crime Act 2002 (and the prevention of terrorism act) make a requirement for those working within financial institutions to report instances where they know or suspect that a transaction, or customer’s/potential customer’s activities might involve the proceeds of financial crime. JMLSG Guidance 3.1.1 JMLSG 6.1 states “persons in the regulated sector are required to make a report in respect of information that comes to them within the course of a business in the regulated sector: where they know or where they suspect or where they have reasonable grounds for knowing or suspecting that a person is engaged in money laundering or terrorist financing. Within this guidance, the above obligations are collectively referred to as “grounds for knowledge or suspicion”

There is, therefore, a statutory and regulatory obligation on all advisers and their staff to report knowledge or suspicion of money laundering. For staff members (including self employed persons with whom we have a contract for services) the requirement is for them to report the suspicious activity to the MLRO. For the MLRO the requirement is to report suspicious activity to the Serious Organised Crime Agency. Did you know…? It is not necessary to report unsuccessful attempts to commit fraud, however, as soon as you are aware that any benefit is acquired, either by the fraudster or by any third party then all known or suspected frauds must be reported by the MLRO to SOCA.

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3.1.2 Suspicious activity reporting procedures It is important that we have procedures in place to facilitate the reporting of suspicious activities to our MLRO, and for onward reports to be made to SOCA if necessary. We need to make sure that our procedures are such that our MLRO can pick up and deal with suspicious activity reports quickly and effectively. This means that you need to know what to do in order to make a report, and that our MLRO is aware of what to do should they receive one.

3.1.3 Who should I send an ISR to?

Where, you suspect that a client or anybody they are acting for may be undertaking (or attempting to undertake) a transaction involving the proceeds of any crime or terrorist financing, you must report your suspicion immediately and in writing to the Money Laundering Reporting Officer (MLRO) within Professional Independent Advisers Limited. Remember, an ISR must be produced if you have suspicions, even if no business is written.

3.1.4 Investigation of internal suspicion reports The MLRO must take care to ensure that suspicious activity reports are not passed to the Serious Organised Crime Agency (SOCA) as a matter of routine. The FSA state that they will monitor the quality of reports made and expect these to demonstrate that “value added” reports have been submitted to SOCA. Accordingly Professional Independent Advisers Limited’s MLRO should complete whatever further investigation is necessary to decide whether an external report to SOCA might be required. In most cases the investigation is likely to involve discussing the case with the reporter, and looking at whatever customer file information is available. The guidance suggests that MLRO’s should be mindful of the balance between obtaining sufficient or extra information and the delays that obtaining that information might cause. There may be times, therefore, where the MLRO choose to make a report before certain information gain be gained. The decision as to whether a report should or shouldn’t be made should not hinge on the amount of information that you hold. So thought processes like “I don’t know enough about the customer for a report to be useful” should be avoided. The law simply isn’t written in this way. If a suspicion arises you have to report it, even if you have little or no information about the individuals. SOCA makes available a special “limited intelligence value” reporting form for cases where you hold only limited information. Example If a customer walked into the Professional Independent Advisers Limited’s office with a bag of cash and told you their name – but left before you entered into any kind of fact finding process, you would still need to make a report to SOCA.

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3.1.5 How are external reports made?

External reports should only be made by Professional Independent Advisers Limited’s MLRO.

The national reception point for the disclosure of suspicions of financial crime is the Economic Crime Unit of the Serious Organised Crime Agency (SOCA). Reports can be made via the SOCA secure web based reporting system, Moneyweb (this is the preferred method and you will need to register for this facility). Alternatively download the forms from the SOCA website. http://www.SOCA.gov.uk/disclosure.asp It is really important, when making a suspicious activity report, that you clearly articulate the reasons for your concerns. Remember that the recipients of the forms might not have your detailed understanding of financial products and practices – so if something is unusual your report should explain why. Reports can be made by fax to 0207 238 8286 or by post to PO Box 8000, London SE11 5EN 3.2 When should I ask for consent to proceed with a prohibited act? Because of the type of the financial sector you work in, there will be very few situations where it will be appropriate to ask SOCA for consent to proceed with a prohibited act. The Money Laundering Regulations require you to carry out our customer due diligence (CDD) checks before you arrange any transaction for your client. So, normally you will be making the suspicion report BEFORE the transaction takes place. That being the case you should: Cease to have any further dealings with the client; and Submit an ISR to the MLRO, this should NOT ask for consent to proceed with a

prohibited act. An alternative course of action would be for you to: Stop working for your client; but Submit an ISR to the MLRO seeking consent to proceed with a prohibited act. But, remember, in the first scenario it would be relatively simply to stop acting for the client. You could tell them that they had not provided sufficient information concerning their identity or other elements of the transaction – as long as you did this before you submitted your ISR you would not be ‘tipping off’

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SOCA would be extremely unlikely to give consent for you to proceed with a prohibited act. So, if you adopted the second course of action you would still have to tell your client that you had to stop doing business with them but you would have to invent reasons that were unrelated to money laundering or terrorist financing. Otherwise, this would constitute the offence of ‘tipping off’ because you would already have sent your ISR to the MLRO asking for consent to proceed.

3.3 Tipping off

Your client, or potential client, must convince you that they are who they say they are and that the funds they are using for a transaction are legitimate. You should feel free to ask whatever questions you think necessary. An offence of ‘tipping off’ can’t happen until after an ISR has been made. Notwithstanding this, it would obviously be unwise to tell a client that you intend to make a report. But, once you have made an ISR you should never tell the client or any third party of your suspicion. Nor should you take any action that could prejudice a future investigation into the client. Any of these actions could constitute the offence of ‘tipping off’ and may also put you at risk of personal danger. If you have suspicions about a specific transaction, where the business has not yet reached completion, you should stop working for the client. You should then make an ISR. Ceasing your work with the client will not constitute ‘tipping off’ as no ISR has been made. Your client will know that it is their job to convince you of the legitimacy of the transaction so if they can’t do this it is quite reasonable for you to terminate the relationship. There is a leaflet produced by the FSA that might help you explain this to your client: “Just the facts about proving your identity” You will find this at www.moneymadeclear.fsa.gov.uk/pdfs/proving_your_identity.pdf

3.4 Making the report

To make an internal report you should follow the procedure below: You should complete Professional Independent Advisers Limited’s ISR form You should ensure that this provides full details of the client and as full a statement as

possible of the information giving rise to your suspicion; This should be forwarded, together with the required documents (as detailed on the ISR

form) to the MLRO immediately; Your MLRO should acknowledge receipt of your ISR The reporting of a suspicion to the MLRO does not remove the requirement to report suspicions that might subsequently arise in respect of the same client. Of course, when your initial suspicions arose, you should have ceased your relationship with your client, but further information might come to light that should be reported to the MLRO.

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Once you have reported your suspicion to the MLRO you will have satisfied your statutory obligation. It is unlikely that the MLRO will be able to provide you with any details in relation to the outcome of your report and you should not askthem to do so. You should always assume that an ISR has been passed on to SOCA.

3.5 Protection from prosecution

You must remember that you only protect yourself from future prosecution if you make an internal suspicion report to your MLRO. You will not be protected from prosecution if you simply make a report to any other member of Professional Independent Advisers Limited staff. 3.6 Compliance with Production Orders Following the making of an external suspicion report the police or other law enforcement body may request that your file information or documentation is made available to them. In order to gain access to this information the law enforcement agency must obtain a Production Order. A Production Order is a document signed by a Crown Court and it requires the firm or person that it is served upon to provide the relevant law enforcement agency with the material that it refers to. Officers might serve production orders upon us in a variety of different ways. This might include unannounced arrival at our premises, but would more normally be by sending you a faxed or postal copy usually following an introductory telephone call with the MLRO. The Production Order will generally allow 14 days from the date of the granting of the order in which to make the documents available, but the time period may be more or less than this. The specific terms of the order will be detailed in the information received and this should be checked carefully. We must comply with the terms of the order. Failure to do so would constitute a criminal offence for which we are very likely to be prosecuted. It is important that we make suitable arrangements for the handover of the file or information. In some cases officers may come to collect it, but they might equally request you send it to them in the post. We will not release the file until such a time as we are in receipt of the original stamped order. If a copy has been faxed to us, we will insist upon receiving the original prior to handover.

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SECTION 4

WHAT ARE THE CUSTOMER DUE DILIGENCE REQUIREMENTS?

4.1 The high level requirements Before you carry out any service or transaction for a (potential) client you must carry out full CDD checks. You must do this whenever a new business relationship is formed, either when business is completed through Professional Independent Advisers Limited for the first time, or when a client is introduced to a product provider for the first time. You must also update you CDD whenever you have further dealings with your client. You will fulfil these requirements when you complete the relevant Individual Verification of Identity (VOI) form or Corporate VOI form. You should also complete the Customer Due Diligence Form. This applies to all business, so you should complete these forms for execution only and direct offer business, as well as advised sales. You must not carry out any business for a (potential) client, or agree to do so, until you have carried out your CDD. To do so would be a criminal offence. If your client refused to supply sufficient CDD information, that would, in itself, be suspicious. You should always make a report to the MLRO if this occurs.

4.2 General principles

As mentioned above, before you carry out any service or transaction for a (potential) client you must carry out full CDD checks. This means you must: identify the (potential) client and/or the relevant parties at the outset of the business

relationship; verify their identity; obtain information on the purpose and intended nature of the business relationship (this

is intended to establish whether or not you are satisfied that the client does not pose a ML or TF risk)

identify any beneficial owners; and have a programme of monitoring in place which reflects the risk of the product sold.

The ‘relevant parties’ that should be identified and verified are: those owning the policy/scheme; those who can control the policy/scheme; those who are providing funds for the policy/scheme. Whilst in many cases the same individual will be conducting all of these roles detailed above (eg they are investing their own money for their own benefit in their own policy) this is not always the case. So, you should verify joint owners, third party fund providers and any third party beneficial owners or controllers.

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Example If you are arranging a savings plan for Mr Smith – but he asks you to set up the direct debit from his mother’s account, you would have to verify both Mr Smith and his mother. This is because Mr Smith owns the plan but his mother is paying the premium. If the premiums were to be paid from a joint account in the names of Mr Smith and his mother, you wouldn’t need to verify the mother – the funds would then be considered jointly owned by Mr Smith and his mother.

4.3 Existing customers When an existing customer wishes to do business with you, you don’t have to carry out all your CDD checks again as long as you can confirm the following: That the client’s name and address have not changed since the original verification was

conducted; That the documents seen originally are still valid, e.g. passports have not expired That any documents used originally are still valid for identification and verification

purposes; Documents used to verify the client’s address must not have an ‘expiry date’, and thus

can be relied upon until the client moves house; The information collected originally, must be sufficient to meet current standards. You would also have to confirm that you still held sufficient and up to date information on the purpose and intended nature of the business relationship (so that you continued in your original belief that the client does not pose a ML or TF risk). 4.4 Source of funds You must always find out what the ‘source’ of the funds is that your client will be using to fund the policy or transaction. You should record what this is on your file and keep a copy of the cheque or direct debit mandate supplied by the client. Remember … The term ‘source of funds’ means specifically where the money for the transaction is being drawn from, i.e. which bank or building society account. This is not the same as ‘source of wealth.’ That means how the client came to have the money in the first place, or how the money got into the bank or building society account. Source of wealth could be an inheritance, bonus or lottery win.

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SECTION 5

SATISFYING THE CDD REQUIREMENTS This section explains how you can meet your Customer Due Diligence requirements, and describes the processes Professional Independent Advisers Limited will need to adopt in order to meet the requirements. 5.1 A reminder of what is included in the term CDD CDD includes carrying out the following: identify the (potential) client and/or the relevant parties at the outset of the business



identify any beneficial owners; and have a programme of monitoring in place that reflects the risk of the product sold. The rules quite specifically state that, where CDD (including verifying identity) cannot be carried out, then a firm should end the business relationship with the client. JMLSG guidance JMLSG 5.2.6 states

Where a firm is unable to apply CDD measures in relation to a customer, the firm: a) must not carry out a transaction for a customer through a bank account b) must not establish a business relationship or carry out an occasional transaction with a customer c) must terminate any existing business relationship with the customer d) must consider whether it ought to be making a report to SOCA, in accordance with its obligations under POCA and the Terrorism Act

5.2 The risk based approach

It is now mandatory for firms to take a risk-based approach. The steps that you have to take to be satisfied that your client is who they say they are and the transaction is legitimate, will increase if the product, or the client themselves fall into a higher risk category. The products you sell as a financial adviser are categorised into 3 levels of risk:

• Reduced risk • Intermediate risk and • Increased risk

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Reduced level risk products

Term life assurance

Policies of long term insurance in connection with a pension scheme, taken out by virtue of a person’s contract of employment or occupation, which contain no surrender clause, and which may not be used as security for a loan (These are Group occupational schemes: Contracted in money purchase, contracted out money purchase, contracted out money purchase final salary schemes and group (AVC) schemes)

Income protection products related to long-term illness

Rebate only pension (RPP)

Critical illness products relating to diagnosis of a specific critical illness

Intermediate level risk products

Whole of life

Income drawdown flexible pension plan phased retirement plan

Life assurance savings plan

Stakeholder plan

Endowments

Personal pension plan (not SIPP or SSAS)

ISA

Immediate vesting personal pension (IVPP)

Group personal pension (GPP)

Compulsory purchase annuity (CPA) Open market options (OMO) With profit pension annuity (WPPA)

Group stakeholder plan

Purchased life annuity (PLA) Hancock annuity

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Increased level risk products

Single premium investment bonds • Including: o With profits o Guaranteed o Income o Investment o Offshore investment bonds

Self invested personal pension (SIPP)

Executive pension plan (EPP) (excludes CIMPs & COMPs 0 see minimal risk section)

Trustee investment pension plan (TIPP)

Small self administered scheme (SSAS)

We’ll now look at how you satisfy each of the CDD requirements and how the risk of the product sold or a customer’s particular circumstances impact on what you have to do. Professional Independent Advisers Limited guidance on the risk-based approach centres on a two-tier model of ‘standard’ and ‘increased’ risk CDD. We will explain this approach in more detail in sections 5.3 and 5.4.

5.3 Standard CDD (for reduced and intermediate level risk products)

The two tier model does not differentiate between reduced risk and intermediate risk products. So, for both these categories of products you should carry out the following CDD: Identify the customer and/or the relevant parties at the outset of the business

relationship; Verify their identity; Obtain information on the purpose and intended nature of the business relationship (this

will be done whilst completing the factfind and should establish that the adviser is satisfied the client does not pose a ML or TF risk;

Adopt a risk-based approach for identifying the beneficial owner; and Have a programme of monitoring which reflects the risk of the products.

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5.4 Increased risk CDD

For increased risk products you should to carry out the following: Identify the customer and/or the relevant parties at the outset of the business

relationship; Verify their identities; Obtain information on the purpose and intended nature of the business relationship Acquire prescribed information at the outset of the business relationship to satisfy the

additional requirements below:

Source of funds and salary details; and Employment and salary details; and Source of wealth (eg inheritance, divorce settlement, property sale) Identify beneficial owners and verify their identity

These details will normally be gathered during the advice process under the ‘know your customer’ rules. If not, you should make sure you specifically ask for these details.

5.5 Identifying your client and verifying that identity

Whenever you have to identify and verify a client you must complete a Verification of Identity form (VOI) form. The VOI form You should be able to evidence the verification of identity checks that you have carried out for each of your clients. The verification of identity form offered by the JMLSG doesn’t give you anywhere to record such information as passport number etc. Professional Independent Advisers Limited does allow for this information. You need this information in case you are asked to produce it by police or another law enforcement organisation. Product providers no longer require this level of detail and simply want you to confirm that you have carried out all the requisite checks. So, you should: send only the first sheet of the VOI form to the product provider; but complete both pages, and keep both the original (or certified copy) on your

client file. You should also make sure that you tick the box beside either section A or B. If you tick ‘A’ you must also tick the appropriate box to indicate whether the verification you carried out meets or exceeds the standard verification of identity requirements.

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5.5.1 Verification using documentation When you use a client’s documents to verify identity you must get sight of an original – you can’t rely on copies. For all risk levels you should obtain documents that confirm: the clients full name; and either their residential address; or their date of birth.

You can do this by obtaining either: a government issued document (with photograph); or a government issued document (without photograph) supported by a second

document, either government issued (without photograph), or non-government issued.

Example Your client doesn’t have a passport or any other document issued by the government that includes a photograph. But, they do have a full and current UK driving licence (old version, i.e. no photograph) and a valid utility bill. This will usually be sufficient to confirm the client’s identity.

Usually however, if the client has a valid passport or photocard driving licence, this will be sufficient to confirm their identity.

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5.5.2 What documents can I use

Below is a list of suggested acceptable documentation:

Government issued documents (with photograph)

Government issued documents (without

photograph)

Other documents (not government issued)

Current signed passport

Current full UK driving licence (old version but not provisional)

Record of home visit

EEA member state identity card

Benefit book or original notification letter from benefits agency confirming rights to benefits or state pension

Recent utility bill or utility statement, or a certificate from a supplier of utilities confirming the agreement to pay for the services on pre-payment terms (but mobile telephone bills can’t be accepted

Northern Ireland voters card

Self-employed in the construction industry – photo registration card fo individuals & partnerships (C1S4, C1S4 (P), C1S4 (T), C1S5, C1S6)

Recent systems generated documentation from an FSA financial sector firm indicating that an account/investment/insurance relationship exists and which contains the customer’s address; or

Residence permit issued by the Home Office to EU nationals

Inland Revenue tax notifications (eg tax assessment, statement of account, notice of coding) but not P45 or P60 documents

Solicitors letter confirming recent house purchase or land registry confirmation

Current EEA or UK photo card driving licence

Confirmation from an electoral register search that an individual of that name lives at the address

Blue disabled drivers pass

Local authority tax bill valid for the current year

Shotgun or firearms certificate

Benefit book or original notification letter from benefits agency confirming rights to benefits or state pension (if not used to prove name); or

Local council rent card or tenancy agreement

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Some important points for you to note

a) A ‘recent’ utility bill must be no more than three months old.

b) You must take copies of the documents you use to verify your client whenever possible. You should always take copies if you meet the client in your office or somewhere that has copying facilities

c) Where it isn’t possible to take copies of the documents you have used, you should record the reference numbers and other relevant details on the VOI to enable investigating authorities to re-obtain the documents if necessary.

d) If you are able to take copies of the documents used, they should be attached to your file copy of the VOI form, they should be dated and certified to say ‘original seen’.

e) Where a copy of evidence taken includes a photograph, and you are verifying the client on a face-to-face basis you must also certify that: ‘the photo provides a good likeness of the applicant.’

f) The most reliable documents to use for verification will always be Government issued.

g) To comply with HMSO guidance, you must only keep copies of passports in black and white. This includes scanned copies.

5.5.3 Electronic verification There are a number of systems available which can verify customer identity by searching multiple databases (like credit files and electoral roll databases). They tend to be offered by credit reference agencies (likes of Experian, Equifax, Call Credit and GB). Limited information needs to be inputted, and you can complete the process without your customer being present and without getting hold of any hard copy documentation. JMLSG guidance confirms that this can be an acceptable alternative to documentary evidence. At the current time not all product providers will accept business where electronic verification has been used. Also, not all systems on the market are sufficiently robust to satisfy the JMLSG guidance notes requirements for electronic verification. If you are considering employing a system of this kind you should check with the providers that you use most whether they are willing to accept electronic I.D. in place of traditional methods. Electronic identification systems don’t provide you with a “pass” or “fail” result; rather they return information about the sort of database “hits” that have been experienced. This means that you need to interpret the results and decide on what is and isn’t an acceptable output.

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5.5.4 Verification for pension sales The tables below show verification requirements for pension products: Reduced risk level pensions Rebate only pension

Obtain HMRC notification form for the individual

Contracted in money purchase scheme Contracted out money purchase scheme Final salary scheme Group AVC plans

No verification required as long as they have exempt approval status from HMRC

Pension transfers from an occupational scheme which is: not an Executive pension plan (EPP) or a Small self

administered scheme (SSAS); and to an occupational scheme, which is not an Executive pension

plan (EPP), small self administered scheme (SSAS or a Section 32 (S32) with no additional funding

No verification required

Intermediate risk level pensions Group personal pension (GPP)

Employer only VOI required, if premiums are paid by employer; and

Employee VOI required where contributions are also, or only, paid direct by the employee ie from their personal bank account

Group stakeholder plan (GSHP) See GPP above

Income drawdown flexible pension plan Phased retirement plan

See GPP above

Stakeholder plan See GPP above

Personal pension plan (not SIPP or SSAS)

See GPP above

Immediate vesting personal pension (IVPP)

See GPP above

Compulsory purchase annuity (CPA) Open market options (OMO) With profit pension annuity (WPPA)

If the funds are from an approved occupational scheme or regulated financial services scheme then no verification is required. If the funds are from another source the annuitant must be verified.

Pension Transfers – where there are ongoing contributions

The following must be verified: the employer, if premiums are paid via the employer; and the employee, where contributions are also, or only paid direct by the employee ie from their personal bank account any third party payers. (If the pension transfer was literally just a change of product provider with no additional contributions being made at that time, no VOI is necessary)

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Increased risk level pensions

EPP

The following must be verified: employer trustees who are beneficiaries or who may give instruction,

if FSA regulated then record their FSA number; third party payers.

SSAS

The following must be verified: employer (company only not directors) trustees who are beneficiaries or who may give instruction; pensioner trustees who are beneficiaries or who may give

instruction, ID verified if they are not on HMRC pensioner trustee approval list;

third party payers.

SIPPs

The following must be verified: policy holder; employer third party payer.

TIPPs

Trustees, if FSA regulated then record their FSA number; Person giving payment instructions where a TIP is held on

behalf of a SSAS managed by another firm, unless that firm is regulated or payment can only be made by a regulated firm.

Pension transfers

As stated above for transfers out of the increased risk pension products above.

We suggest that you take copies of the documents used whenever possible. Where it isn’t possible for you to take copies of the documents that you have seen, you should record reference numbers and other relevant details. The industry standard “verification of identity” form or “introducer’s verification certificate” provides a ready route to retain these records. Product providers of designated investment and pure protection business will usually require you to forward a copy of this form (or the original) along with the customer’s proposal.

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Remember For the police to be able to get documents back from the original provider, the information that you take down needs to be quite specific. For example, it’s no good just putting down loose references to utility providers, such as ‘gas bill’ – you need to name the company and note down the reference number. See the ‘How to’ guides relating to verification of identity for more information.

5.6 Reliance on other firms to complete verification The responsibility to obtain satisfactory identification evidence rests with you as the firm entering into the transaction. However you may reasonably rely on another FSA regulated firm to: undertake the identification procedures when introducing a customer to you;

or to confirm the identification details if the customer is not resident in the UK.

5.6.1 Verification Requirements If you are relying on another firm’s verification then you must obtain consent from that firm that they are happy with you to rely on their CDD measures. Consent can be given in a number of ways (e.g. written or verbal) however we strongly suggest that you obtain a copy of the Verification of Identity Form (VOI) completed by the other regulated firm as we believe that this would ultimately provide peace of mind that CDD has been carried out correctly and demonstrate that consent has been given. Where possible this should be accompanied by certified copies of the documentation. Ultimately, the responsibility for compliance with the regulations (e.g. ensuring that correct CDD is carried out) still rests with Professional Independent Advisers Limited, as such responsibility cannot be delegated.

5.7 Isle of Man based providers

The Isle of Man Government Insurance and Pensions Authority (IPA) regulates Manx Insurance Companies, all of whom are required to fully comply with the Isle of Man Anti-Money Laundering Standards for Insurance Businesses (‘The Standards’). The IPA’s Money Laundering guidelines are more onerous than those that apply to UK based financial services companies. As a result you will be required to comply with their more stringent rules when writing business with Isle of Man based product providers. The main differences are detailed below.

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5.7.1 Suitable Certifiers Isle of Man financial companies are required to obtain either sight of original verification of identity documentation or copies certified by a “Suitable Certifier”. This is a more stringent requirement than that imposed by onshore insurance/investment companies who continue to accept Verification of Identity Forms from intermediaries as proof that the money laundering requirements have been met. Authorised Financial Advisers are considered to be “suitable certifiers”. Therefore as a result of this you will always be required to provide Isle of Man companies with copies of the evidence of identification you have seen, certified in line with the guidance provided below.

5.7.2 Form of Certification When forwarding verification documentation to an Isle of Man based product provider you should: certify the documentation as true copies taken from the original; sign and date the copies to confirm you have seen the originals; print your name beneath your signature; ensure the document carries your member firms stamp or seal.

This can cause problems where customers are being seen in their homes or otherwise in places where copying facilities are not available. However, there are three options available:

1. Take the documents away (if the customer agrees), photocopy them and return the originals as soon as possible, preferably in person.

2. Ask the customer to provide a certified copy. This will need to be certified by such

as a Notary Public, Lawyer or an authorised embassy official of the country issuing the documents.

3. Ask the customer to have available the original documents together with a

photocopy (more if placing business with several providers) of each. You can then check the validity of the photocopy against the original and certify each photocopy in the usual way.

Option 3 is likely to be the preferred choice. In this way the documents will not leave the customer’s possession and the customer will not incur the potential cost of obtaining certified copies.

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5.7.3 Verifying Source of funds/wealth for Isle of Man based providers Isles of Man based financial institutions are required to obtain evidence of the source of funds for “higher risk business”. Higher risk business is not defined within the guidance with institutions being invited to employ a “risk based approach”. Product providers may differ in what they view to be “high risk” business, so if you are in any doubt as to how a particular product may be classed, you should seek guidance from the relevant product provider at the point of placing business. The list below identifies the type of evidence you will be required to send to the provider to support your customer’s statement of how they came by the monies to be invested, or ‘origin of source of wealth’, in the event that your customer’s application is determined as ‘higher risk’. Don’t forget that you must certify all documentation. Source of funds Evidence required Income from employment copy of last three month’s pay-slips or

confirmation from employer; or copy of recent accounts if self employed; or equivalent documentation.

Other income Suitable documentation to verify income. Investments/Savings Copy of recent bank or investment statement or

equivalent documentation. Sale of Shares Copy of share redemption certificate(s), or other

equivalent documentation. Policy claim Copy of letter of notification of proceeds for claim or

chargeable event certificate, or other equivalent documentation.

Compensation payment Copy of solicitor’s letter or court order, or other equivalent documentation.

Lottery win Copy of confirmation letter or cheque from lottery organisation, or other equivalent documentation.

Property/Asset sale Copy of sale agreement or other equivalent documentation.

Inheritance Copy of will or letter from solicitor, or other equivalent documentation.

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5.8 Understanding the purpose and nature of the business relationship

Neither the Money Laundering regulations nor the JMLSG guidance notes use the term ‘know your customer’ (KYC) any more. Instead, the term ‘Customer Due Diligence (CDD) is used to describe the full range of checks you need to carry out in respect of the prevention on Money Laundering and Combating Terrorist Financing, including what was previously referred to as KYC. The rules specifically require you to: “Understand the purpose and the nature of the intended business relationship” The enquiries and observations you carry out to answer this question will provide the foundation for you to recognise unusual or suspicious activity. If you aren’t happy about something then you should continue to question your client until your concerns are laid to rest. As financial advisers, you have an obligation to ‘know your client’ so you have an opportunity to ‘understand the purpose and intended nature of the business relationship’. To maximise business opportunities you will be asking your client about the source of their funds and source of wealth both for the transaction for which they sought your advice and future business opportunities. Once you have gathered sufficient knowledge about your (potential) client, you will be in a position to recognise when a transaction or series of transactions, is unusual. A suspicious transaction is likely to be one that is inconsistent with your client’s usual activities, or unusual compared to those of other clients in a similar situation.

5.8.1 The business relationship and cause for suspicion Satisfactory CDD procedures provide the foundation for recognising unusual and suspicious transactions. It can involve understanding the source of funds and, in some cases, the source of wealth; the purpose of specific transactions and the expected nature and level of transactions. A suspicious transaction is likely to be one that is inconsistent with your client’s known legitimate activities. Therefore the first key is to ensure that you have sufficient knowledge about the customer to recognise when a transaction, or series of transactions, is unusual or abnormal. Factors, which should lead you to have cause for suspicion, would include: business terms that appear too good to be true;

Example Individuals might offer larger than normal fees to transact business, or make promises to put significant amounts of businesses or very large transactions through you from which you will make significant sums. Always consider whether the customer needs to make large payments or whether they are proportionate. If not, the purpose of them is likely to be to try to “blind you with the money” – so that you ignore indicators of crime.

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customers who are reluctant to provide proof of identity; Example Customers might initially appear to want to do business with you – but decide against it when asked for I.D. Also watch out for customers who ask lots of questions about the purpose of the I.D. check. customers who place undue reliance on an introducer or other third party; Example Criminals often try to hide behind other people so that their true identity and circumstances are hidden. Be careful of anybody who “just signs the documents” and gets other people to fill things in for them (like the fact find), to attend meeting instead of them or otherwise deal with you on their behalf. requests for cash related business;

Example Fairly straightforwardly – if a customer asks you to transact business in cash, enquires whether cash business is possible or indicates that they have funds in cash then this is a key indicator that they are in possession of the proceeds of crime (the crime could be anything from tax evasion to organised crime). You should report any such cases. linked transactions which might be being used to disguise or divert money;

Example Examples might include unnecessary switching, encashment and reinvestment of the same funds, reinvestment in the name of a partner, business or family member. Look out particularly for cases where the transactions don’t appear to have a clear financial planning purpose. where the source of funds for investment is unclear;

Example Customers who “conjure up” money should be treated with care. Watch out for those who say that they will be “receiving money” without providing an explanation of where from. where the magnitude of the available funds appear inconsistent with the customer’s

other circumstances, i.e. the source of wealth is unclear;

Example Think about young people with lots to invest, or those who live in poorer residential areas, or those with relatively low paid jobs. Are the customer’s circumstances consistent given the rest of their circumstances? Does their explanation of the source of funds make sense?

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when a transaction does not appear to make sense given the customer’s circumstances, particularly if the customer insists on following such a route against your advice;

Example A customer wants to cash in an investment and immediately re-invest it into a similar plan. You tell them that this is going to cost them money due to re-investment charges but the customer insists on proceeding anyway. where the transaction doesn’t appear rational in the context of the customer’s business

or personal activities;

Example Imagine a customer on modest income who tells you they have inherited £250,000 and are in their 30s. The customer wants you to put all the money immediately into Traded Endowments and not pay off their mortgage or unsecured debt or otherwise spend any of the funds. Is the customer acting as you would expect and is the transaction rational? Probably not – so a suspicion report would be in order. where the pattern of transactions changes;

Example Particular care should be taken in this area if the customer changes their method of dealing with you without reasonable explanation (e.g. from advisory to execution only). where a customer who is undertaking transactions that are international in nature, does

not appear to have any good reason to be conducting business with the countries involved;

Example Consider why the customers hold monies in the particular country that the funds are going to or from? Do their circumstances suggest that it would be reasonable for them to hold funds in such countries? where lump sum investments are used by the investor as security for loans; Did you know…? This is a classic money laundering process. Rationally somebody with an investment would use that money – rather than taking out a loan. But having a loan solves difficulties associated with explaining source of funds. The money launderer takes the loan monies and uses them (as they appear to come from a legitimate source) and then settles the loan using their investments. customers who are unwilling to make face to face contact, or to provide you with

normal personal or financial information, for no apparent or rational reason.

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Where a new corporate client is undertaking unusual transactions. Example You should first check the company’s status in the “free information” section of the companies house website and identify that the company is listed as “active”. If the company were listed as “inactive” it would support the unusual activity of the client, as you wouldn’t expect inactive companies to be undertaking transactions. Where a new client comes into the office with a specific amount of money to invest and

knows the product they want to invest in. Example A client approaches you with £25,000 to invest in a high yield income bond, the client is 29 years old, a new resident to the area, is not a homeowner and is unmarried with no previous records of financial investments. They explain that investment is for their sick mother who has been put into care. When you question the source of wealth and choice of investment the client becomes hostile but explains that the £25k is from saving monthly and insist that they want the investment they asked for even though they don’t appear to know much about it. With this type of scenario you should make an internal suspicion report as the client circumstances do not make sense and it could potentially be money laundering. Where a longstanding client of yours wants to invest into an ISA

Example

A 67 year old client of 20 years wants to invest £50 a month into an ISA. The money is coming from the client’s grandson who gets the money for odd jobs. The grandson wants an investment with easy access but doesn’t have a bank account and so the money has to go through your client’s bank account. The grandson is actually a small time drug dealer and is using your client to launder the money. This is an example of a family member being unwittingly used to launder money, it is an increasing trend among criminals Remember that a money launderer is likely to provide persuasive arguments about the reasons for their transactions. You need to look behind these, at the customer’s actual circumstances, to decide whether a transaction is suspicious. If you have any doubt whatsoever, we suggest that you make a suspicious activity report. This will protect you from future prosecution. There are other scenarios that on the face of it may appear suspicious, but after finding more information on your client as part of “know your customer” it actually eliminates the suspicion. These can be substantial and wide ranging. Below are some examples of such scenarios:

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Where you have a suspicion regarding a new client who has just sold his business.

Example You have a suspicion about a new client who claims to have just sold a business for a million pounds and is now wanting to invest the money. You believe the client was “kind of scruffy” and didn’t completely believe his story. You deduce that the funds might be the proceeds of a crime. However before reporting this you search the internet for a website for the company the client claims to have sold. This confirms that the client was indeed a founder of the company; press releases also confirm that it was recently sold to a larger firm. This information goes some way to removing the suspicion.

When during a conversation with a self-employed client it comes to light that they

receive cash in hand payments but that they don’t pay tax on it.

Example Where this occurs you should tell the client that they should indeed be paying tax on the cash payments received and that they should contact Her Majesties Revenue & Customs (HMRC) to sort this out. If the client appears genuinely unaware that they were supposed to be applying tax on this and a willingness to get it sorted out then you need to take no further action, however if they suggest they won’t be getting it sorted out you should submit an internal suspicion report immediately. This is a classic example of where “know your customer” would help clarify the situation.

Where ex-pat clients want to release £25,000 worth of equity in a UK property they

have.

Example When you receive the application for the equity release you notice that the client’s only have £8700 worth of debt, which brings up the question of why they would want to release so much more equity than the amount of debt they have. Based on this you could perceive the clients as higher risk. But by applying the “know your customer” philosophy and asking for further information as to their reason for releasing this specific amount of money you can eliminate the risk.

Where a foreign client living in the UK wants to invest some money.

Example The client has been in the UK for 1 year and wants to invest £10,000 they have in a UK bank account into an investment vehicle. You do a full fact find on them and proceed with the recommendation in the normal manner. But there are two things that would appear to make this client higher risk. The fact that they are from overseas and have only been in the UK for a year and that they have £10,000 sitting in a UK bank account. To lower the risk of the client you will need to apply “Know your customer” e.g ascertain if the client is looking to reside permanently in this country, what the source of wealth is for the money, what occupation they are in or looking to get into etc.

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Where a Burmese client living in the UK wants to invest £20,000 into an investment

bond Example Burma is on the list of non-cooperative countries and so you would need to seek guidance before proceeding with any advice, On the face of things the client would be classed as higher risk due to their country of origin and the product being asked for, but once you have gone through the fact finding process and satisfied yourself as to the source of funds in order built up a picture of the client and their circumstances, the risk level might be reduced.

5.8.2 Risk factors So, from the examples above you can see that as part of Customer Due Diligence, it is important that you assess the risk posed by your client. There are several different factors to consider when determining whether a client should be deemed higher risk, these include, but are not limited to: the risk posed by your customer’s behaviour; the risk posed by the way the customer comes to you, i.e. a one off transaction, an

introduction or non-face to face; and the risk posed by the products/services being used. This is mentioned within in the FSA SYSC rules. FSA Rule

SYSC 3.2.6F G states “In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including: (1) its customer, product and activity profiles; (2) its distribution channels; (3) the complexity and volumes of its transactions; (4) its processes and systems; and (5) its operating environment.”

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5.9 Monitoring

The Money Laundering Regulations 2007 require all firms to put in place “a programme of monitoring which reflects the risk of the product.” So, it is sensible to ensure that Professional Independent Advisers Limited programme places more emphasis on monitoring higher risk business. In particular, Professional Independent Advisers Limited consider monitoring the following: Single premium business written over a certain monetary amount Trust business Relatively large amounts being invested by younger people (e.g. over £30,000 being

invested by those under 25) Business written for overseas clients Non-face to face business

Another (rather obvious) inclusion in our onitoring programme is to check that Customer Due Diligence is being carried out correctly. For example, VOI and CDD forms are being fully and accurately completed. JMLSG guidelines also specify that Professional Independent Advisers Limited monitoring programme should include information on the following: Bonds

Cancellation (i.e. applications not proceeded with after

funds received) Early surrenders (i.e. within 5 years of commencement Partial surrenders totalling up to 75% within 5 years of

commencement Top-up payments over £10,000 Third party payments of any value Plan arranged from non-UK residents

EPPs SSASs SIPPs TIPPS

Loans taken out using the product as collateral Top up payments when much larger than current holdings

Remember: cancellation or early surrender of investments, for example, provides a readily available route for laundering money. For example The early encashment of investments is a well-documented form of “pure money laundering – i.e. making illegitimate funds look clean. The process is simply that the dirty funds are invested and then enchashed shortly afterwards. The plan holder then has a cheque from a life office or product provider to evidence source of funds.

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In particular our monitoring programme should allow us to identify the following: Requests to pay surrenders to third parties; Surrenders of plans in the short term, especially if this involves monetary loss; Surrenders which do not appear rational given your knowledge of the client’s

circumstances; Early surrender of plans where the available “CDD” information is lacking, e.g. due to

business being place “execution only” or by direct offer, or because the client refused to disclose fact find information at the outset.

You should consider each of the above points whenever you are requested to action (or become aware of) a policy surrender and make an ISR if appropriate.

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SECTION 6

BUSINESS THAT COULD POSE A GREATER RISK Quite separate from the risk associated with the product you recommend to a (potential) client, there is the potential risk posed by the clients themselves. As part of your CDD procedures, you will have to look out for such clients and be prepared to carry out enhanced CDD when necessary.

6.1 Execution only and direct offer business

The CDD requirements for execution only and direct offer business are based on the risk posed by the product, just as they are for advised sales. For both execution only and direct offer business it will be much harder to carry out the required CDD checks because the information you have about the client will be limited. For reduced and intermediate level risk products we do not believe that additional CDD is necessary, but for increased level risk products you should collect additional CDD information. Of course, you should also carry out further CDD if for any reason you were not “comfortable” with the client themselves, or the transaction they wanted to carry out. For all execution only and direct offer business you should carry out your usual CDD checks, i.e.:

a) identify the customer and/or the relevant parties at the outset of the business relationship b) verify their identities c) obtain information on the purpose and intended nature of the business relationship.

For increased level risk business on an execution or direct offer basis you should also:

d) acquire prescribed information at the outset of the business relationship to satisfy the additional information requirements below:

source of funds and salary details; and employment and salary details; and source of wealth (e.g. inheritance, divorce settlement, property sale) and any record of change of address.

e) identify beneficial owners and verify their identity (if considered necessary) This information can be recorded on the “CDD form,” which is available on our website. You should only verify the information if you feel this to be necessary. Ideally the client should complete the “CDD form” because, in most instances, you will conducting the business on a non face-to-face basis. For direct offer business the form can be sent out in the direct offer pack.

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6.2 Non Face-to-Face Verification Using Documentation

Where verification is being completed on a non-face-to-face basis you need to obtain the documentation outlined in sections 5.5.1 and 5.5.2 above. Accordingly either:

the original documentation will need to be obtained by post; or copies provided which have been certified by a person of appropriate

standing (refer to section 6.2.3); or you could use electronic verification should be undertaken.

JMLSG guidance also asks for an additional check to be carried out to guard against identity fraud. Guidance on these matters is provided below.

6.2.1 Receiving Documents by Post If you are requesting the customer to forward verification documentation to you it is best practice to ask they be sent by recorded delivery. Equally we would suggest that you return them by this method. The Joint Money Laundering Steering Group guidance specifically states that processes should not be followed which require passports, driving licenses, and identity cards/voters cards (in Northern Ireland) to be sent by post. Accordingly we would not recommend that you request customers to post these documents to you; rather the certification process outlined below would need to be followed. In cases where it would not be commercially viable to follow a “certification process” we would recommend that driving licenses, passports and NI Voters Cards are requested and returned by at least recorded delivery, that they are stored securely whilst in your possession and are returned promptly. As with all face-to-face business, if you do receive documentation by post one of the additional identity fraud checks outlined below will need to be carried out.

6.2.2 Electronic Verification for non face-to-face business Electronic verification of identity systems are designed to allow customer verification to occur “back office” and so is well suited to non-face-to-face customer verification. The checks against identity fraud are still required where electronic verification of identity is used.

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6.2.3 Certification of Documentation In cases where the customer is unwilling to forward original documentation to you, (or if you think it is unreasonable to request these) then you can obtain certified copies of the verification documents instead. This involves an individual of suitable standing obtaining sight of the documents, taking copies and writing on them to confirm that they are true copies of the originals. These copies can then be forwarded to you in place of receiving the originals. The guidance suggests that, for UK residents, the certification of documentation should be undertaken by a regulated or professional person covered by the money laundering regulations or by somebody from a government department / agency or organisation. This means that the following people might be suitable to certify documentation:

Solicitor; Banker; Authorised Financial Intermediary; Accountant; Teacher; Doctor; Civil Servant. Other individuals falling within the definition above.

For non-UK Nationals documentation may only be certified by:

an embassy, consulate or high commission of the country of issue; or by a lawyer or attorney; or for international students only by staff in the registry of a UK higher

education institution. Copies of identification evidence should be dated and signed “original seen” by the individual who carried out the certification. If the identification evidence includes a photograph the wording should also state “the photograph provides a good likeness of the applicant”. The documentation must be accompanied by contact details for the individual who made the certification. As with the “financial exclusion” process we suggest that you contact the individual who made the certification to confirm that they have seen the original documents.

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6.2.4 Additional Requirements to Guard Against Identity Fraud Where non face-to-face business is being transacted the JMLSG guidance requires an additional check to guard against identity fraud. They suggest that one of the following checks would be acceptable for this purpose:

• if the initial cheque is drawn on a personal account in the applicant’s name at a UK bank or building society this in itself will be sufficient to provide the additional check and no further action need be taken (this is likely to be the method most regularly employed); or

• by mailing the application documents to an independently verified address. Independent verification of address can be obtained by carrying out a check of the electoral role. An on-line check of the electoral roll (available at www.192.com ) would be acceptable for this purpose.

Should neither of the above routes be applicable then you can, instead, make a “welcome telephone call” to the applicant prior to transacting business. The call should be made to an independently verified home or business number. The guidance suggests that, as part of this call, that you request the customer to confirm a minimum of two pieces of personal identity (security) information that have been previously provided during the transaction process e.g. by asking them to confirm the date of birth and postcode as provided on the application. For internet business sign-on using verification procedures, security codes, tokens and/or other passwords which were provided by hard post, or secure delivery, to the named individual at an independently verified address will suffice to demonstrate that the verified individual is the person with whom you are dealing. 6.3 Non UK residents Dealing with non-UK residents can lead to a greater and in some cases a significant risk of money laundering or terrorist financing. Legislation and guidance suggest that more robust identity checks should be carried out. Accordingly, you should carry out additional CDD. Why do non-UK residents pose a greater risk? There are two reasons: They are well placed to move money between countries (this is a good strategy for

money launderers – because it makes tracing the funds more difficult. Its more difficult to verify the client’s circumstances – because we are less familiar with

the documentation and practices of the country they live in, this makes “CDD” harder to achieve.

It can be difficult to fulfil the additional CDD checks needed for business with non-UK residents. We would like to remind you that all CDD checks must be carried out before you do any business for the client. We therefore suggest that you warn your clients about the PML and CTF requirements so that you can manage their expectations accordingly.

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6.3.1 Verifying non-UK residents Only a limited number of documents can be used to verify the identity of non-UK residents. Below we list acceptable forms of verification: Proof of full name and residential address or date of birth: This can be verified by obtaining:

Sight of an original passport or national identity card only (refer to section 6.2 for

details of the process to follow if the business is not conducted on a face-to-face basis); Copies of the pages containing reference numbers, date and country of issue; Copies of pages containing visas and travel stamps; If you can’t take copies of the pages mentioned above you must make sure that you

record all this information on your client file. You should also obtain: Secondary documentation, government or non-government issued: This should be: The best available and must be from an official source, for instance, government,

government agency or bank or credit institution; Obtained directly from the customer i.e. sight of original correspondence from one of

these agencies/institutions to the client at their permanent address in the last three months or may be a confirmation of full name and address received directly from these bodies;

Retained, if you receive confirmation of full name and address directly; Copied whenever possible if the client shows you the document. Where this isn’t

possible you should note the name and type of the institution, the date of issue, the details of the address and any associated reference numbers.

If you have any doubts about the authenticity of the documents provided, you should check with the institution that issued them to verify whether the details are correct and inform Professional Independent Advisers Limited’s MLRO immediately if you have any doubts. If the client is a non-UK national and has arrived in the UK in the last three months, you should carry out an additional check. You should contact the client’s employer (or place of education) to corroborate the identification and permanent residential address. You can do this either by telephone or in writing (written evidence is always preferred). You are likely to require the client’s authority before the employer or educational institution will release such information.

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6.3.2 What CDD is required? Above all, when dealing with overseas customers you should always consider whether there is a legitimate reason for them to be doing business in this country and with yourself. This means that you should carry out the usual CDD measures, dependent on the risk of the policy and whether the business is done on a face-to-face basis etc, but you should ensure that you get satisfactory responses to your enquiries about the purpose and intended nature of the business relationship. If you can’t establish a legitimate reason for the business taking place in this country, this is a cause for suspicion and you should make an immediate report to Professional Independent Advisers Limited’s MLRO. Please note, electronic verification systems are ineffective for non-UK residents because the sources from which systems collate and verify data are usually specific to the UK.

6.4 Politically Exposed Persons (PEPs)

Individuals who have, or who have had, a high political profile, or hold, or have held public office, can pose a higher money laundering risk to firms as their position makes them vulnerable to corruption. This risk also extends to members of their immediate families and to known close associates. But, of course, just because someone is as PEP doesn’t necessarily incriminate them of their families, it just means that they are in a higher risk category and the CDD you carry out should reflect this.

6.4.1 UK PEPs The money laundering regulations don’t give a definition of a UK PEP but they do give a definition of a PEP outside the UK, in the EEC or an international body. This definition is give below and it would seem reasonable to apply the definition and recommended CDD to UK PEPs. You should therefore refer to Section 6.4.2 below).

6.4.2 Foreign PEPs A PEP is defined as: “an individual who is or has, at any time in the preceding year, been entrusted with prominent public functions and an immediate family member, or a known close associate, of such a person.” This definition only applies to those holding such a position in a state outside the UK, or in the EEC or an international body. Under this definition of a PEP an individual ceases to be a PEP when he has left office for one year, but you should apply a risk based approach to determine whether you need to carry out enhance CDD until the risk associated with the individual’s previous position have abated.

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You should not normally consider public functions exercised at levels lower than nationally to be prominent. However, when their political exposure is comparable to that of similar positions at national level, you should consider, on a risk-based approach, whether persons exercising those public functions should be considered as PEPs. Prominent public functions include: Heads of state, heads of government, ministers and deputy or assistant ministers; Members of parliament; Members of supreme courts, of constitutional courts or of other high level judicial bodies

whose decisions are not generally subject to further appeal, except in exceptional circumstances;

Members of courts of auditors or of the boards of central banks; Ambassadors, charges d’affaires and high-ranking officers in the armed forces; and

(other than in respect of relevant positions at community and international level) Members of the administrative, management or supervisory boards of state-owned

enterprises. These categories do not include middle-ranking or more junior officials. Immediate family members include: A spouse A partner (including a person who is considered by his national law as equivalent to a

spouse); Children and their spouses or partners; and Parents. Persons known to be close associates include: Any individual who is known to have joint beneficial ownership of a legal entity or legal

arrangement, or any other close business relations, with a person who is a PEP. Any individual who has sole beneficial ownership of a legal entity or legal arrangement

that is known to have been set up for the benefit of a person who is a PEP. When you decide if a person is a known close associate of a PEP you need to consider any information Professional Independent Advisers Limited might have or any information that is publicly known. Professional Independent Advisers Limited have to have procedures in place to determine whether a customer is a PEP, you will usually be able to do this using the questions you ask in the course of your CDD. Having established that you are dealing with a PEP you should obtain approval from Professional Independent Advisers Limited’s principle and from PIA PML and CTF team to establish a business relationship with such a customer. You must then take adequate measures to establish the source of wealth and source of funds that are involved in the business relationship and make sure that you monitor the client on an on-going basis.

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SECTION 7

SPECIAL CDD SCENARIOS – PRIVATE CLIENTS This section explains what you have to do to verify (potential) clients where the normal processes are not relevant or would be difficult to apply. We also cover cases where UK residents don’t have access to verification documentation and thus where “Financial Exclusion” rules may need to be applied. 7.1 Policies for children If you are arranging a policy for a child it is likely that they will not be able to provide the normal verification documentation. The rules and guidance allow for this, and provide slightly different procedures for these cases. For children, a member of the family or guardian will normally open the account. In these cases evidence of the relevant adults should be obtained. In a lot of cases, the person providing the funds might be different to the person who will ‘operate the account’. For instance, where a grandparent is providing the funds for a policy in a child’s name and it will be mandated that the parent or legal guardian control the account until the child comes of age. So, you might have to carry out CDD or verification on more than one adult. Remember ….. The basic principles of identification and variation are that you need to verify: The owner of the funds; The controllers of the funds; and The provider of the funds. When a policy is for a child, the owner will be the child, the controllers would usually be the parents and the providers could be the parents, grandparents or anyone else interested in the child’s financial welfare.

As well as verifying the adults you would also have to verify the child’s identity. To do this you should obtain sight of one of the following: Birth certificate Passport NHS medical card Child benefit documentation Child tax credit documentation National insurance card (for those aged 16 and over) Please note that you can only use a birth certificate to identify a child, they can never be used for adults. You should also obtain evidence of the parent’s residential address (using the normal document types). This can be used to evidence the child’s address.

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7.1.1 Stakeholder pensions for children If a stakeholder or personal pension is sold to a child there is an exemption that means that the child does not need to be verified until they are 18 years old and begin to make contributions to their own policy.

7.1.2 Child trust funds The rules for verifying CTF accounts are different to those for other products because: A CTF is considered a low level risk product; Excluding the Inland Revenue (IR) payment the yearly contribution is limited to £1,200; The account can’t be accessed before the child reaches the age of 18 (except on

death or terminal illness).

You can use the IR voucher (or IR instruction to open a CTF) to evidence the child’s identity. But, full identity checks will be carried out on the child when they access the account at 18 or thereafter. Every CTF must have ‘registered contact’ (RC), in most cases this will be a parent. For PML and CTF purposes, the RC can be regarded as an ‘applicant for business’. But, Professional Independent Advisers Limited will simply accept the IR voucher as acceptable evidence of both the RC and the child. Should the account be accessed because the child became terminally ill, the RC would have to be verified. You don’t have to verify the identity of third parties, for instance grandparents, who might make payments into the CTF. But, should a third party attempt to make payments in excess of the maximum annual premium, you should consider whether this is a ‘suspicious activity’. Unless the excess payment was credited to a ‘feeder’ account, the whole payment should be rejected. You should return the original cheque or direct debit authorisation to the client. You should not send the payment to the product provider for them to refund the excess.

7.1.3 Students If your client is a student you should carry out the normal identification and verification process as far as possible. Many students do have passports or driving licences. But if you are not able to carryout the standard identification and verification procedures you can: verify them using the address of their parents or guardian (so if they can provided

evidence that they live at their parents or guardians address this will be sufficient); get confirmation of their address from their college or university; get sight of their tenancy agreement or student accommodation contract.

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You must be particularly careful at the start of the academic year, the student will probably not be living at the student address and we know that criminals take advantage of this situation using ‘registration frauds’ to gain access to financial services. To verify an international student you can use the following documents: passport or EEA national identity card; and letter of acceptance or letter of introduction from institution on the DFES list.

7.1.4 Prisoners and those on probation If the individual is actually in prison at the start of the business relationship and you can’t get standard VOI then you should get a letter from the governor of the prison. If the applicant has been released then you should get a letter from the police, a probation officer or hostel manager.

7.1.5 Third party scheme If you have a client who wants you to set up a regular savings scheme where the funds are supplied by the client for investment in the name of another (for instance a child or spouse or a company investing in the name of a partner or director) you should carry out VOI checks on the person or entity funding the premiums, as well as on the legal owner of the policy. Please refer to 7.1 above for further information on policies for children. Evidence from enforcement agencies suggests that accounts set up for children or spouses are often used for tax evasion or other illegal purposes. If you think that the business you are asked to conduct isn’t legitimate you should make an ISR.

7.1.6 The mentally incapacitated The affairs of people who are mentally incapacitated are usually handled in one of two ways. Below we explain both ways and the checks you should make in each situation. Either: an enduring power of attorney is registered with the Court of Protection (registration

happens at the point of the individual becoming mentally incapacitated). This gives the attorney power to manage the financial affairs. The court of protection will always stamp the ‘Enduring Power of Attorney’ document. If this is the case then you should verify the identity of the attorney and obtain sight of the stamped power of attorney document; or

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a receiver may be appointed by the court to act on behalf of the mentally incapacitated person. The Public Guardianship Office will advise the receiver to open an account in their name as receiver for the mentally incapacitated client. To do this the receiver will need to have either a ‘courts receivership order’ or a ‘short order’ from the court. You can rely on the documents issued by the court to fulfil your VOI obligations.

7.1.7 Asylum seekers The identity of those seeking asylum, or who have recently been granted asylum, might be difficult to prove because they may not have the usual evidence of identity documents. For those who are seeking asylum, the Application Registration Card can be used to assist in verifying the individual’s name. But you should also try to get other evidence to support this. For those who have had asylum claims accepted you can use the proof of name documents listed below: blue “United Nations Convention travel documents” – these are issued by the Home

Office to people who have been accepted as refugees under the terms of the UN Convention 1951;

brown “Certificates of Identity” – issued by the Home Office to those who have been granted exceptional leave to stay in the UK;

a letter from the Home Officer confirming that the individual has been granted refugee status;

a letter from the Home Office confirming that the individual has been granted exceptional leave to remain in the UK.

If you are ever asked to provide a service to asylum seekers you should proceed with great care. You would not usually expect people in this situation to be in a position to need financial advice. Except perhaps to arrange a low value, simple transaction such as term assurance or membership of an employer’s pension scheme. All dealings with asylum seekers should be reported to the MLRO.

7.1.8 Economic migrants Economic migrants who enter the UK with permission to work will usually have a passport or National Identity card (Nationals of EEA and Switzerland) to prove their identity. In some cases, they may have a GV3 visa form – either in addition to or instead of a passport. This has a photograph on it and can be used as proof of identity. The GV3 is most prevalent amongst Taiwanese immigrants and those who entered the UK as part of the agreement to close the Sangatte Red Cross Centre in France.

7.1.9 Refugees who are not on state benefits

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You can use the following documents to verify the identity of refugees who are not on state benefits: Immigration Status Document; with a residence permit; or IND travel document (ie blue convention travel document, or red stateless persons

document, or brown certificate of identity document).

7.1.10 Travellers If you can’t carry out VOI in the usual way then you should use the “Financial Exclusion” process detailed below. You can get evidence of address through the traveller’s local authority who has to register traveller’s sites. 7.2 The financial exclusion process As discussed above, some (potential) clients can’t provide the VOI documents you need. But, they might still ask you for financial advice. In many cases it will be possible to get alternative documents to build up a suitable “weight of evidence” so that you are satisfied that the client is who they claim to be. If you can, it is usually better to get alternative documents. However if this isn’t possible you can use the financial exclusion process – although this does tend to be rather onerous. As long as the client is a UK resident, you can accept a letter or statement from a person in a position of authority as identification. They must of course know the client personally. The JMLSG guidance notes suggest that the following individuals might be suitable for this purpose: UK solicitor Doctor Hostel manager or social worker District nurse or midwife Teacher Care home manager Minister of religion Prison governors or probation officer Police officer Civil servant Member of parliament Local or county councillor The letter must:

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confirm that the client is who he claims to be; confirm the client’s permanent address; be personally signed by the person providing the letter; include the writers address and preferably be on headed paper; contain a contact telephone number for the provider of the letter. If you have to use the financial exclusion process you should always take extra care. It would be relatively easy for criminals to take advantage of the financial exclusion process. So, you should always consider whether the client’s circumstances are such that it is realistic for them to have no identification documents available – if you don’t think its reasonable you should make an ISR. When you receive a letter intended to confirm an individual’s identity, you must always telephone the writer to confirm that they did actually provide that letter and that the details it contains are correct. Your client file should record why you used the financial exclusion process.

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SECTION 8

CARRYING OUT CDD FOR CORPORATE CLIENTS There are additional requirements to consider when you are carrying out customer due diligence for corporate clients. This section explains the differences so that you can amend your approach to CDD when dealing with such clients

8.1 Introduction

By their very nature, corporate structures can be a useful route for criminals who want to launder money. The risks, and hence the identification and verification requirements, vary according to the risk of the product. The risks and CDD required will also vary according to the type of business with which you are dealing and how easy it would be for a criminal to use it for illegitimate purposes. Remember Corporate structures can be used by criminals to move money around. The transactions appear to be perfectly legitimate business transactions. Within corporate structures individuals can also remain anonymous. Businesses that handle cash (for instance restaurants, pubs, clubs, casinos and launderettes) are often used as ‘fronts’ to get the proceeds of crime into the financial system.

8.1.1 A reminder of what is included in the term CDD CDD includes the following: identify the (potential) client and/or the relevant parties at the outset of the business



identify any beneficial owners; and have a programme of monitoring in place which reflects the risk of the product sold.

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8.1.2 The risk based approach It is now mandatory for Professional Independent Advisers Limited to take a risk-based approach for corporate clients just as it is for individuals. The steps that you have to take to be satisfied that your client is who they say they are and the transaction is legitimate, will increase if the product, or the client themselves fall into a higher risk category. The products you sell as a financial adviser are categorised into 3 levels of risk: Reduced risk Intermediate risk and Increased risk

You should make sure that you always understand the company’s legal form, structure and ownership and should get enough additional information on the nature of the company’s business and reasons for seeking a particular product or service.

8.2 Identifying and verifying the identity of a corporate client

It doesn’t matter what the corporate structure is, you should always complete a VOI form. The VOI form You should be able to evidence the verification of identity checks that you have carried out for all your corporate clients. So it is important that you gather all relevant information relating to the documents you have checked. Professional Independent Advisers Limited corporate VOI forms will allow you to do this. However, product providers no longer require this level of detail and simply want you to confirm that you have carried out all the requisite checks. So, if you are using Professional Independent Advisers Limited VOI form then you should: send only the first sheet of the VOI form to the product provider; but complete both pages, and keep both the original (or certified copy) on your client

file.

8.2.1 Public Listed Companies Corporate clients may be publicly accountable in several ways. Some public companies are listed on stock exchanges or other regulated markets, and are subject to market regulations. They have to disclose a lot of information to the public about their ownership and what they do, as they are considered to be publicly owned. Because of this, the verification checks that you have to carry out are at a lower level than for other types of business. For PLCs you should get the following information: Full name Registered number Registered office in country of incorporation Business address

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To verify the identity of the company you should get: Either confirmation of the company’s listing on a regulated market Or a search of the relevant company registry Or a copy of the company’s Certificate of Incorporation. To evidence that the firm is listed on a regulated market you can find its listing in the press or by other reasonable means (for instance, internet search – www.londonstockexchange.com - this will give you both confirmation of the listing & SEDOL number). You should record the SEDOL number and the regulated market or exchange that the firm is quoted on in the relevant boxes on the Corporate VOI form. You should also check that the person Professional Independent Advisers Limited is dealing with is properly authorised by the company to do so. There are a variety of ways in which you can do this: In cases where a director of the firm has written to you in respect of the transaction on company headed paper then that in itself is sufficient. Where the individual with whom you are dealing is not a director and has not written to you in respect of the transaction then can do any of the following: Copy the suitability letter or transaction details to the company’s financial controller

or treasurer. If you do this then the address you use should be independently verified. You should tell the client that this is part of the process that will be followed;

Call the company on an independently verified number, i.e. from the phone book and check the individual’s credentials with a third party at the firm. Again it is likely that you would need to inform the client that this is part of your procedures;

Obtain a copy of the list of directors, if the individual with whom you are dealing appears on the list this will be sufficient to evidence their ability to act for the firm;

Obtain a copy of the board resolution giving the individual authority to act; Obtain confirmation from the legal department of the firm that the individual is

authorised to act.

8.2.2 Subsidiaries of PLCs You can deal with these as you would PLCs in 8.2.2 above. But you should get independent confirmation to verify that the company is a subsidiary of the parent company. This should done by: seeing annual reports for the parent company which would refer to the subsidiary; or getting a letter of confirmation from the company secretary of the parent company.

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8.2.3 Private and unlisted companies Unlike publicly listed companies, the activities of private or unlisted companies are often carried out for the profit/benefit of a small and defined group of individuals or entities. These companies will not have to disclose as much information as public companies. However, generally the structure, ownership, purposes and activities of many private companies will be clear and understandable. Where private companies are well known, reputable organisations with long histories in their industries and substantial public information about them, the standard evidence should be sufficient to fulfil your obligations. For all private and unlisted companies you should get the following information: Full name Registered number Registered office in country of incorporation Business address

AND The names of all directors (or equivalent) Names of beneficial owners owning or controlling 25% or more, even if these

interests are held indirectly To verify the identity of the private or unlisted company you should get the following documents from an official or recognised independent source: EITHER A copy of the certificate of incorporation/certificate of trade or equivalent; and evidence of the company’s address (this may be a visit to the premises or a copy of a

utility bill, bank or mortgage statement, local authority tax bill or VAT notification); and a list of shareholders/directors (this may be included in the annual reports & accounts)

and beneficial owners holding more than 25% (if different to shareholders/directors). OR a search of the Register of Companies (Companies House) or make an enquiry via a

business service to obtain the information. Note: The free searches from Companies House do not provide a list of directors or shareholders and are not sufficient on their own to verify a private company. You can purchase this information from Companies House online. If you can’t get company registration, for instance, because the firm has only recently been set up, then a letter from a solicitor confirming that the details have been submitted to Companies House will be sufficient.

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Higher risk scenarios If the private or unlisted company is less transparent, or has less of an industry profile or there is less independent means of verification of the company, you should consider whether there is a greater risk of ML or TF. You might decide that you should carry out some further CDD. You may also want to carry out further CDD if the plan you are putting in place for the company allows third party payments or money transmission. To do this you should verify the identities of other shareholders and or controllers. You should make sure that you know and understand any associations the company has with other jurisdictions (headquarters, operating facilities, branches, subsidiaries etc) and the individuals who may influence its operations (political connections etc). Directors If you decide to verify the identity of one or more directors, you should do this as you would for private individuals (see Section 7). You should select those directors who have authority to operate an account or to give the firm instructions concerning the use or transfer of funds or assets. Beneficial owners As part of standard evidence you have to know the names of all individual beneficial owners owning or controlling 25% or more, even where the interests are held indirectly. If you think the company poses a higher risk you might decide to verify the identity of some of the beneficial owners as private individuals (see Section 7). Signatories You may also decide to verify, as a private individual, any person not in the above groups who are authorised to control the investment or product you are arranging (the signatories). If you aren’t sure, you should confirm with the product provider whether the proposed transaction falls into the definition of “high risk” business. You should also keep records on your files of any changes to beneficial owners. This is because if you do any more business for the same company, you would have to identify these changes and make sure that new shareholders or beneficial owners are verified when necessary. If the person you are dealing with doesn’t appear on the list of directors that you have obtained, you will have to verify that they have permission to act for the company. This process is detailed in Section 8.2.1above. If a search of Companies House or a business information service shows the company’s status as “inactive” you should find out why an inactive company is trying to carry out financial transactions before you process any business for them. You might decide that you need to report such cases to the MLRO.

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8.2.4 Establishing the identity of lawyers and accountants If your client is a lawyer or accountant and you are dealing with them in the course of their business, as regulated firms or individuals then you can verify them using their Practising Certificate. You can check if they are regulated by reference to an up to date membership directory for the relevant law society or accountancy body. However, when they are acting in their personal capacity you will need to verify them as individuals in the normal way. The Law Society’s membership directory can be reviewed on line at: www.lawsociety.org.uk The accountancy membership directory can be reviewed on line at: www.icaewfirms.co.uk 8.2.5 Clubs and societies When asked to arrange a transaction for a club or society you will first need to consider whether the club if simply for social, regional purposes or whether it is more sophisticated, possibly with connections overseas. That said, the ML or TF risk associated with most clubs or societies will be low and you simply need to obtain the following information: Full name of the club or society Legal status of the club or society Purpose of the club or society Names of all officers You should identify those who have the authority to operate an account or give instructions concerning the use or transfer of funds or assets. You should also check that the person you are dealing with has authority to represent the charity or society (this process is detailed in 9.4 above). If you think that the club or society poses a higher ML or TF risk, then you should find out more about the purpose, funding and beneficiaries of the club or society. This might include a copy of the constitution or equivalent. You may also decide that you need to verify the identities of additional officers and/or institute additional transaction monitoring arrangements.

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8.2.6 Charities in England, Wales and Scotland The verification rules in respect of charities have two purposes – firstly to prove that the charity actually exists and secondly to demonstrate that the individual that you are dealing with is authorised to act for the charity. You should make the following checks: Details of all registered charities can be accessed on the Charity Commission website

(www.charity-commission.gov.uk ), the Office of the Scottish Charity Regulator website (www.oscr.org.uk ), or a check can be made by telephone to the respective regulator’s enquiry line (see www.mlsg.org.uk ). But, you should be aware that simply being registered is not in itself a guarantee of the bona fides of the charity, although it would indicate that it is subject to some ongoing regulation.

The Charity Commission or Charity Regulator will also provide details (i.e. name and address) of the charity’s “correspondent”. If the person you are doing business with is the named correspondent than you don’t need to carry out any further verification checks.

In cases where the person carrying out the transaction is not the correspondent you should copy the suitability letter to the correspondent with a covering note requesting them to contact you urgently if there is reason to suggest that the application has been made without their authority.

8.2.7 Charities in Northern Ireland Charities in Northern Ireland are not registered with the Charity Commission or Charity Regulator. So, to verify charities in Northern Ireland (and in England, Wales and Scotland that can’t be verified by the appropriate register) you should follow the procedures given for private companies, or trusts and clubs as appropriate. As an additional check, you should contact the Inland Revenue to confirm that body’s charitable status. Remember, charities are often linked to terrorist funding so should potentially be regarded as higher risk.

8.2.8 Church bodies Places of worship (other than the Church of England, which is a registered charity) are generally exempted by law from registering as charities and may not therefore have a registered number. Instead, they can apply for a certified building of worship from the General Register Office (GRO). For tax purposes, however, they can notify HMRC of their charitable status. You can therefore verify their identity either by: Writing to the appropriate headquarters or regional organisation of the denomination

and obtaining sight of the GRO certificate; or Verifying their status via HMRC.

If you can’t verify them as above then you should verify them in line with the guidance for private companies, trusts, clubs and societies as appropriate.

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8.2.9 Schools and colleges If an independent school or college is a registered charity, you should treat it like a charity. If it is not registered as a charity then you should follow the guidance for private companies.

8.2.10 Local authorities, government departments and universities When arranging transactions for the above bodies you should carry out the following checks: Verify the principal address of the body. You could do this by visiting their premises,

by obtaining sight of documents such as utility bills sent to the organisation at the address you’ve been given, or by finding the organisation listed by an official source at the given address.

Demonstrate the legal standing of the organisation. For instance that it is a government body. You can do this by checking that it is listed as such by an official source.

You should also check that the individual you are dealing with has authority to act. This can usually be achieved by: Copying the suitability letter to the organisation’s financial controller or treasurer. If

this route is being followed then the address used should be independently verified. You should tell the client that this is part of the process that will be followed; or

Calling the company on an independently verified number, for example from the phone book and check the individual’s credentials with a third party at the firm. Again it is likely that you would need to inform the client that this was part of your procedures;

Obtaining confirmation from the organisations legal department that the individual is authorised to act for them.

8.3 Verification of trusts When your client is a trust you will have to obtain the following information: Full name of the trust Nature and purpose of the trust (e.g. discretionary, testamentary, bare) Country of establishment Names of all trustees Names of any beneficial owners Name and address of any protector or controller.

You must verify the identity of the trust using reliable and independent documents, data or information. You could use the trust deed to do this. You must make sure that you understand the ownership and control structure of the trust.

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You will need to find out the names of the following: All beneficiaries, all trustees, and all controllers All trustees and All controllers

You should carryout full identification and verification checks (using the individual VOI form) on the following: All trustees and controllers who can operate an account or give you instructions

concerning the use or transfer of funds or assets. The settlor (i.e. the person who provided the fund).

8.3.1 Higher risk trusts Trusts that are less transparent and have more complex structures with numerous layers may pose a higher ML or TF risk. In such cases you should find out more about the trust, for instance about its purpose, funding and the beneficiaries. You could, for instance: either Search an appropriate register in the country of establishment

or Obtain a summary of the instrument establishing the trust.

You could also ascertain: Donor/settler/grantor of the funds (except where there are large numbers of small

donors) Domicile of business/activity Nature of business/activity Location of business/activity (operating address)

You could also decide to verify the identities of additional trustees and/or of the settlors. Discretionary and offshore trusts For discretionary and offshore trusts you must also find out and record the nature and purpose of the trust and the original source of funding. Offshore trusts Where funds for an offshore trust are drawn from an account not under the control of the trustees, two authorised signatories on the account, from which the funds are drawn, must be verified as private individuals.

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8.3.2 Life policies in trust When term assurance contracts, with no investment element, are being placed in trust the rules do not require verification of the identity of the trustees at outset. In these circumstances only the identity of the premium payer need to be verified (the plan has no value other than on death – thus the trust only forms at this time). The life office will need to verify the identity of the trustees prior to releasing any funds in the event of a claim. If any life policy is being placed in trust where the applicant is also a trustee, and where the trustees have no beneficial interest in the funds, you need only verify the identity of the person applying for the policy.

8.4 Variation of powers of attorney and third party mandate arrangements

Whenever you act for a client with a power of attorney you must confirm why the power of attorney or third party mandate was granted. You must then carry out the following checks: Personal verification of the holder of the power of attorney/third party mandate; Personal verification of the client themselves as they are the beneficial owner (that is

the person upon whom the mandate or power of attorney is held). You must also obtain a copy of the power of attorney or third party mandate. The process for mentally incapacitated clients is outlined in Section 5 and is different to the process above.

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SECTION 9

NATIONAL & INTERNATIONAL FINDINGS Making use of national and international findings is part of the FSA anti-money laundering regime. This chapter explains that regime, and how to comply with it.

9.1 What does the guidance require?

The JMLSG rules require Professional Independent Advisers Limited to consider “government and financial action taskforce findings” when creating and maintaining your money laundering procedures. When the JMLSG guidance talks about “government and financial action taskforce findings,” it is essentially asking firms to consider two sources of information. These being: The Financial Action Taskforce list of non-co-operative countries; and The Bank of England/ UN Terrorist lists.

These are considered in more depth below.

9.2 The Financial Action Taskforce (FATF) Non-Co-operative Countries

The FATF assess and provide lists of countries whose financial systems have weaknesses that make them particularly vulnerable to use by criminals, and who have not taken measures to address these weaknesses. At present all countries previously on the Non-Co-Operative list have been removed so there is effectively no list at present. The FATF are continually monitoring this area though and should it change we will list any countries that are placed on there and give guidance on what to do if you encounter customers from countries on the list.

9.3 Financial sanctions targets/terrorist list

Following the terrorist attacks on the USA, the Bank of England provided lists of terrorist suspects. Since October 2007, HM Treasury has taken over this responsibility. HM Treasury now provide information on targets listed by the UN, EU and the UK. This terrorist list can be viewed on the following link: http://www.hm-treasury.gov.uk/financialsanctions As well as the FSA rule requirement to consider the content of the list, it is separately an offence to provide “financial or related” services to any listed individual or entity. As a UK based financial adviser it is likely that our exposure to the list is relatively small but you should make Customer Due Diligence checks of it – especially if you are dealing with non-UK nationals.

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It’s important that our advisers are aware of the existence of the lists. The underlying legislation requires you to report any instances where you know or suspect that the person you are dealing with appears on the Bank of England list, so advisers and staff to report these cases to the MLRO for onward reporting to SOCA. Some countries are very exposed to the terrorist lists, as a result of terror groups being based, or heavily supported within their borders. The following countries have a particularly large number their nationals on the terrorist lists:

Iraq

Egypt

Tunisia

Indonesia

Algeria

Afghanistan

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SECTION 10 TRAINING The need to train staff, and to make them aware of money laundering derives from the Money Laundering Regulations, and is stated in FSA SYSC rules and the JMLSG guidance. This section explains those rules.

10.1 Where can I find guidance on staff training?

In relation to staff training, the Systems and Controls (SYSC) sourcebook simply states: “a firm should ensure that the systems and controls include appropriate training for its employee in relation to money laundering.” Chapter 7 of the JMLSG Guidance Notes provides further guidance on how to comply with this requirement. Professional Independent Advisers Limited’s directors/senior managers have overall responsibility for the establishment and maintenance of effective training arrangements, and Professional Independent Advisers Limited’s MLRO has specific responsibility for the oversight of Professional Independent Advisers Limited’s anti money laundering systems and controls, including appropriate staff training.

10.2 Awareness

There are a variety of elements of the FSA rules and underlying legislation that FSA want regulated firms to make their staff aware of. In particular the: requirement to obtain verification of identity; need to recognise and report knowledge of suspicion of money laundering or terrorist

financing; need to make use of national and international findings; identity of the MLRO, and their responsibilities; law relating to money laundering, and the FSA rules; potential effect on the firm, or the employee should the law or rules be breached.

They also suggest that this awareness should be applied very broadly – essentially capturing any individual who works within Professional Independent Advisers Limited. The term “from tea lady to chief executive” is often used to sum up the breadth of this requirement, although the level of staff training and awareness may differ, depending on the specific role of the individual within Professional Independent Advisers Limited. FSA Rule SYSC 3.2.6G states “A firm should ensure that he systems and controls include: • (1) appropriate training for it’s employees in relation to money laundering”

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A relatively straightforward way for Professional Independent Advisers Limitedto achieve compliance with the rules and guidance is to put in place a written awareness material document covering the FSA key points (that is this document).

10.3 Training

In addition to the “awareness” requirement Professional Independent Advisers Limited also have to provide appropriate training to staff, based on their particular role. JMLSG Guidance JMLSG 7.23 states: “Relevant employees should be trained in what they need to know in order tocarry out their particular role. Staff involved in customer acceptance, in customer servicing, or in settlement functions will need different training, tailored to their particular function. This may involve making them aware of the importance of ‘know your customer’ requirements for money laundering prevention purposes”

10.3.1 Who needs to be trained? The training requirement is unlikely to be limited to “advisers”, as other individuals often get involved in, or are party to, transaction information. The requirement will always apply to designated investment advisers but they are also likely to be applicable to: administrative staff; any paraplanners or similar that we employ; anybody employed in a compliance or supervisory role.

10.3.2 How do I assess what level of training is required? The level of training that we provide for staff should be based on an assessment of the products and services Professional Independent Advisers Limited are involved in and the potential of these products or services to pose a money laundering risk. So for example, some individuals may not see client files, but others will. As such, your training should be different for the two roles. This means that we may want to consider tailoring training programs for particular individuals so that they get the training that is relevant to their specific job role. This could for instance, include how to apply the information they collect during the fact-finding process to money laundering and how to identify suspicious transactions.

10.3.3 What Should the Training Cover? The rules don’t specify precisely what needs to be covered by the training but it seems reasonable that our training is direct at those areas which we feel are most relevant or pressing for the audience (bearing in mind that the training needs of your advisers might be quite different to those of your admin staff, or our MLRO).

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The following are the kind of areas that Professional Independent Advisers Limited provide training on. the law on money laundering; how to identify suspicious transactions; the methods of money laundering; how to correctly complete the verification of identity process; how to fill in a verification of identity form; changes in the money laundering rules, or your internal procedures.

10.3.4 In what form should the training be delivered Again, the FSA rules don’t really specify, but the JMLSG suggest that any method of delivery will be okay, and a mixture of training methods may be appropriate. This might include face-to-face training, videos, distance learning or computer based training. Professional Independent Advisers Limited use this procedure manual and group training. The SOCA and JMLSG websites provide material that may be of use when devising staff training sessions. Their websites can be found as below: www.soca.gov.uk www.jmlsg.org.uk JMLSG guidance also suggests that assessment of the training’s effectiveness is also useful. This can be done, for example, by conducting short tests at the end of the training sessions. 10.3.5 How often do you need to provide the training? New JMLSG guidance, which came into force on 15

th December 2007, removed the old

requirement to ensure that training was given to staff at least every two years, however the emphasis is on the fact that training should be provided more often than this, rather than less often. It would certainly be difficult to argue that Professional Independent Advisers Limited’s training procedures were robust enough if training occurred less often than this. You also need to keep records on training provided to staff in order to demonstrate that you have done so. Please see section 8.4 below regarding record keeping requirements. 10.4 What Records do I Need to Keep? Professional Independent Advisers Limited keep a record of: the names of the staff that have been provided with training, the kind of training they received the date the training was received If appropriate, the effectiveness of the training (e.g. results from short tests)

These records should be held for at least five years.

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SECTION 11

RECORD KEEPING This section explains what records you need to keep to comply with the money laundering rules and guidance.

11.1 What records do I need to keep of customer due diligence?

The FSA rules don’t specify the form in which you need to hold verification of I.D. records but they do they outline at a high level, the information that you need have. The Joint Money Laundering Steering Group provide more detail in Chapter 8 of their guidance notes, and the accepted practice is to complete the JMLSG standard “Verification of Identity” form. This form provides a structure for capturing the relevant required details, and product providers will almost always expect you to provide them with a copy of this document when you are placing business with them. JMLSG Guidance JMLSG 8.7: “In relation to the evidence of a customer’s identity, the firm must keep the following records: (i) a copy of ,or references to ,the verification evidence obtained during the application

of CDD measures; or (ii) information as to where a copy of the evidence of identity may be obtained. Where a firm has received a confirmation of identity certificate, this will in practice be the evidence of identity that must be kept. Such a certificate may be obtained when relying on an introducer to verify identity.

Accordingly, once the CDD procedures have been met you will usually need to complete a Verification of Identity form.

11.2 What are the Retention Timescales?

Section 8 of the JMLSG guidance explains how long you have to retain documents that are held for prevention of money laundering purposes. The JMLSG guidance in this area are mainly a direct reflection of the underlying legislation and mainly require documents to be held for at least five years after the business relationship with the customer has ended. The following records must, therefore, be retained: Identification of customer - full details of evidence of identity for 5 years from the

end of the business relationship with the customer; Transactions – full details of the transaction for 5 years from the date the transaction

was completed (remember that is a lot of cases the general investment business record keeping requirements might require you to hold the records for longer than

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this anyway); Insolvent customer – details of grounds for insolvency and steps taken to recover

the debt for 5 years from the date of insolvency; Internal and external reporting – full details of action taken for 5 years from the

creation of the record; Information not acted upon – full details of the information considered by the MLRO,

but not reported externally for 5 years from the date the information was obtained. MLRO annual (and other) reports. Staff awareness training records, including information on the effectiveness of the

training (see section 10) Compliance monitoring records

11.3 Repeat Business Verification

It isn’t necessary for you to re-verify a customer’s identity every time you do business with them, provided that the information that you obtained on a previous occasion is still current (e.g. passports are still unexpired), and the customer has neither changed their name or address. However, there is still a continuing obligation to exercise CDD, as described in Section 5.You should also verify the source of the funds on all occasions. Think about this… When you open a bank account you have to verify your identify at the point of opening the account. The bank wouldn’t usually ask you prove your identity again just because you were undertaking transactions on the account, or even if you decided to open a further account with them. The same principle applies to your customers. You have to verify their identity first time you do business with them and retain the records. Verification is per customer, not per transaction.