The Value of Client Due Diligence Procedures

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Client due diligence takes centre stage

Since reports of irregularities at several high-profile banks and fiduciary services appeared recently in the Maltese press, the financial services industry as a whole has been subjected to tighter customer due diligence procedures (CDD).

Regulators have started to impose stricter compliance controls and data checks while dishing out hefty fines to entities that do not fulfil their legal obligation to collect and report accurate information about their clients. Understandably, the push towards implementing more rigorous client background checks has raised concerns about data privacy and security among customers.

In this article, we review the most common questions and procedures used by corporate service providers (CSPs) to know their customers, how entities secure digital and physical records, and why trusting providers who take CDD seriously can protect your company’s reputation.

Common questions on procedures used by CSPs

CSPs in Malta apply a relatively consistent set of customer due diligence procedures to screen their clients and ensure their funds originate from legitimate sources. The questions and procedures used by providers revolve mainly around the following matters:

  • Declaration of sources of wealth
  • Identification of politically exposed persons (PEPs)
  • Gathering more information about the type of transactions involved

The information listed above is collected at the take-on stage; after a prospective client approaches the CSP and before a professional relationship is initiated between the two parties. It is imperative that the details provided at this stage are truthful and accurate as they will be used in subsequent searches.

The service providers are also responsible for conducting continuous monitoring and updating of the records in their possession. The process and the obligations attached thereto remain an ongoing responsibility of the CSP well beyond the take-on stage.

Keeping customer records safe, online and offline

One of the responsibilities of CSPs is to ensure that customer data records are kept safe both online and offline. As clients are often requested to fill in paper-based due diligence forms, these must be stored in a secure environment which can ensure their long-term integrity.

In the case of electronic copies and backups, it is vital for entities operating in the sensitive industries such as financial and legal services to have robust information security practices in place, such as restricting staff access to information on a need-to-know basis.

This and similar measures allows CSPs to improve trustworthiness and alleviate the most common concerns their clients may have regarding the privacy and security of their information. Moreover, agencies operating in the EU must implement various data protection and IT security policies as a prerequisite for abiding by GDPR.

Avoiding fines and protecting your company’s reputation

CSPs play an essential role in protecting their clients and society in general and can be considered front-liners in combating money laundering (ML) and financing of terrorism (FT).

The increased compliance efforts on the part of regulators and operators are critical steps towards enhancing our ability to stop transactions that are funded from or otherwise fund illicit activities. To fight ML and FT, and nip these issues in the bud, CSPs have to take a position whereby the role of the director is an active one and not merely a figurehead within the company.

At Asteria, we take concrete steps to fulfil our compliance obligations, such as by holding regular meetings with clients and stakeholders, even if just through video conferencing, to maintain open and effective communication channels. We have protocols in place to ensure proper record-keeping, including meeting minutes, company agreements, and resolutions.

We appreciate that clients may initially feel cautious about sharing confidential information about their business. Still, we are confident that our sound practices and professional track record will ease fears and offer complete peace of mind. Our responsible and experienced approach to compliance helps companies in managing and significantly minimising the risks of incurring fines, reputational damage or even potential blacklisting.

Wherever possible, our team takes a proactive role in acting upon requests by the client to ensure that business transactions are concluded in an efficient and timely manner. Despite these additional legal requirements, our goal is to provide business continuity by giving a solid legal framework whereby your company may operate smoothly and efficiently in Malta.

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