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On-boarding of a client – FIC draft customer due diligence and risk assessment

The Financial Intelligence Centres recently published Draft Public Compliance Communication 108 (PCC 108) with the objective to provide clarity on certain practical application issues relating to the on-boarding of a client in terms of Chapter 3 of the FIC Act.

The draft PCC 108 clearly states that each potential client of an accountable institution (AI) should be risk-rated during the onboarding of the client.

This draft PCC reiterates that AIs should not, when risk-rating a client, only take a single risk factor into consideration. The risk-based approach also does not entail that all clients be assigned the same risk rating due to a single factor, such as the product purchased. Should the AI regard the life insurance policy purchased to be a low-risk product, the AI must then also consider all other risk factors relating to the client such as:

the type of client,
geographic location,
distribution channels,
if the client is a foreign prominent public official or domestic prominent influential persons or family members or known close associates of the before mentioned.

Once all these unique risk factors have been considered, only then can the Money Laundering and Terror Financing risk be assigned to the relationship with the client. Each one of these risk factors, as mentioned above, may also carry a different weighing. For example, the geographic location may only form 10% of the overall risk assigned to the client, with the other risk factors carrying more weight. This will be for the AI to determine and to be set out in their Risk Management Compliance Programme.

Life Insurance

Where an AI offers life insurance policies, the AI would now also be required to understand the risk attached to the nominated beneficiary of the policy, who will be regarded as a client of the AI upon payment of the policy proceeds. The policyholder (client) would need to be reassessing the risk when there is a change to the nominated beneficiary of the policy.

Access to information relating to a section 29 report is also briefly addressed.

Click here to download the draft PCC 108 for more details.

Comments on the draft PPC 108 can be submitted by Friday, 27 March 2020 via email on Consult@fic.gov.za.

(Carolee Reyneke-Minnaar is Moonstone’s appointed compliance researcher and developer. She is an admitted attorney and notary of the High Court and has a keen interest in anti-money laundering and the combating of terrorist financing).

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