The big change brought in by the 2017 Money Laundering Regulations in respect of due diligence is the need for a ‘firm level’ risk assessment. However, we are getting lots of questions about the due diligence (ID) requirements as they apply to individual clients. Here are the most common ones:
1. Is there any fundamental change in verification requirements?
No. The draft CCAB guidance states that appropriate identification information for an individual would include full name, date of birth and residential address. How much evidence you gather to verify this depends on your assessment of risk.
2. I’ve heard there’s more focus on photographic ID?
Yes. Appendix C of the draft CCAB guidance states that an original, or an acceptably certified copy, of a valid passport, valid photo card driving licence, national identity card (for non-UK nationals), or identity card issued by the Electoral Office for Northern Ireland should be sought.
3. If no photographic ID were available would that be a deal-breaker?
Not necessarily. The draft CCAB guidance makes clear that verification evidence should be based on your assessment of risk. In a normal or low risk situation, if there were a good reason why the usual photographic sources of ID were not available (e.g. the client didn’t possess any of them) alternative verification sources could be used.
4. Do I need to get photographic ID for all longstanding clients where I’ve not sought it before?
Verification evidence should already be on file for longstanding clients. This requirement was introduced in 2007. However, we don’t anticipate firms seeking photographic ID for all existing clients where they haven’t sought it before – as long as you have something to verify the full name, date of birth and residential address.
However, for new clients and for ongoing due diligence, we would suggest that firms focus on the verification sources recommended in the draft CCAB guidance.
5. Are colour copies of passports ok?
They are. Previous ICAEW guidance suggested that this was not the case – but this has now been withdrawn, so black and white or colour copies are equally fine.
6. What’s the big deal with certification of passports and driving licences?
The draft CCAB guidance states that businesses should consider how they will demonstrate the provenance of document copies. When the original was seen by a relevant employee, that person should endorse the copy to that effect, including the date on which it was seen.
7. If I’ve met the customer in their home, can they scan and send me a copy of their passport later?
There shouldn’t be a problem with this as long as you’re happy that what’s been scanned and sent is a copy of the original that you’ve seen. Again, it all comes down to your assessment of risk and documenting how you’ve got comfort.
8. What about beneficial owners?
The same verification evidence as that referred to above is typically sought for beneficial owners of companies and other entities that you act for. Importantly the 2017 regulations only state that reasonable measures should be taken to verify the identity of beneficial owners, which potentially gives you some ‘wiggle room’. Again, it all comes down to your assessment of risk.
9. What’s required in higher risk situations?
In cases of higher the risk, more verification evidence must be sought. That’s why the risk assessment is so important. Again, refer to Appendix C of the draft CCAB guidance for more help on this.
10. I’ve heard rumours that we’ll now have to use electronic databases all the time?
This is not true – although electronic databases can be a useful tool. The draft CCAB guidance requires such databases to be reliable, comprehensive and accurate. However, it was ever thus.
11. Does anything change regarding ongoing due diligence?
Not really. Risk must be reassessed periodically, and further verification evidence sought as appropriate (e.g. where sources of finance, business model, proprietors or directors have changed). Professional accountancy bodies have been challenging firms on the need to do systematic ongoing checks for some time though.
If anything, per paragraph 5.26, the guidance is now a little clearer as it stipulates when updated checks must be carried out and when a review may be appropriate.
12. Anything else to watch for?
Appendix C of the draft CCAB guidance explains how sources of finance might be verified. There is, if anything, more focus on this in the new draft guidance. It’s a well-known fact that criminals will use companies and other entities to launder the proceeds of crime, so accountants should challenge sources of unexplained income and seek verification evidence as required. If satisfactory evidence can’t be found, a report to the NCA might be required.
Watch out for the definitive CCAB guidance for the accountancy sector on AML compliance in 2018. The draft guidance can be downloaded from: