KYC for Accountants
Know Your Customer (KYC) Support
The Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 designates accountants, auditors and tax advisors for the purposes of the anti-money laundering provisions. The provisions of these Acts, require us to implement certain procedures to establish client identity and impose reporting obligations in respect of suspicions regarding offences under the money laundering legislation.
Accountants, auditors and tax advisors are required to, amongst other things, carry out Customer Due Diligence to:
- Verify the identity of new clients, including that of any beneficial owners who are connected with the client or the service they provide;
- Establish and retain records of identification for at least five years from the date of last doing business with the client;
- Retain original documentation relating to transactions for a period of at least five years following the execution of the transaction;
- Establish measures to prevent and detect money laundering;
- Report suspicions of money laundering to the FIU/Garda Siochana and the Revenue Commissioners;
- Establish procedures to ensure all transactions connected with certain designated states and territorial units are reported;
- Ensure adequate control over client monies.We are required to report to the Revenue Commissioners and An Garda Siochana directly in the circumstances set out above and may do so without the knowledge or consent of the client.
The Effect of Evolving Anti-Money Laundering (AML) Regulations
Authorities have spent decades implementing AML regulations, aiming to prevent criminal activities or find and prosecute those involved in executing them. Unfortunately, criminals have become increasingly sophisticated using complex financial instruments and strategies for money laundering, taking advantage of technological innovations, such as cryptocurrencies and digital identification verification methods to evade detection.
In an attempt to keep up with these criminals, authorities and governments continually update AML regulations. In the European Union, all financial institutions had to implement 6th Money Laundering Directive ("AMLD") by 3 June 2021. However, financial institutions can struggle to stay up to date and remain compliant in an ever-changing regulatory environment.
To avoid business risks and reputational damage, financial institutions need to implement and strengthen their internal AML governance controls, processes and procedures, such as Know Your Customer (KYC) and Customer Due Diligence (CDD).
Ongoing due diligence
Financial institutions are responsible for carrying out periodic due diligence on all clients—the he frequency of which depend on whether the client has been assigned a high, medium or low risk rating. This measure helps to identify any changes to existing clients and ensure that their risk rating has not changed, e.g. that they have not become high risk and now require EDD. At the end of the day, financial institutions are responsible for the conduct of their customers, so they should complete thorough CDD and EDD, keeping records of all due diligence performed.
Risk-based approaches
The benefits of using a risk-based approach to KYC is that it ensures robust regulatory compliance whilst delivering an enhanced client experience unlike an approach that requires a prescriptive list of documents. It also prevents a box-ticking attitude towards compliance.
A risk-based approach reduces the documentation requirement for lower-risk clients, and it is flexible to the extent that if, for whatever reason, a medium- or high-risk client cannot provide a document, a financial institution can act practically and seek an alternative solution that satisfies both the regulatory requirement and their internal risk framework. The financial institution must clearly document the solution and the rational for its use and have the appropriate authority within the institution sign off on this alternative approach.
Collaboration and documentation
Risk-based solutions can be customised for the circumstances at hand, but KYC teams need to work closely with their compliance and FinCrime teams to record all decisions made using this approach for consistency and future reference. Ultimately, the risk-based approach creates a positive experience for clients by working with them to satisfy CDD and EDD regulatory requirements.