CDD in 10 steps
Step 5: Determine client-related risks
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In short
After you have determined that the Wwft applies to you, you have identified your client and verified these credentials, and in the case of a legal entity the possible UBO has been determined , you should assess any potential risks associated with a business relation with the client. In this step you need to check, among other things, whether your client is a Politically Exposed Person (PEP).
One of the ways to estimate a client's risk is to see if a client is a PEP. (Politically Exposed Person)
Politically Exposed Person (PEP)
One of the first steps you take to assess client risk is to check whether your client, or a member of his immediate family, is considered as being politically exposed. A politically exposed person is someone who currently is employed in a political function or has held such a position up to one year ago
Investigating whether your client is considered as a PEP is important because a PEP carries a higher risk of corruption due to his, or her, profession. Even if your client is related to a PEP, this risk is considered to be increased as the client is in the direct social circles of the PEP. In the event that the client is a PEP, you are obliged to conduct an enhanced client research, the requirements for the enhanced client research vary depending on the field of work of the provided service.
Additional checkups
In addition to investigating whether your client is on a PEP list, it is also wise to check if your client has had negative media coverage or is under the supervision of a financial regulatory body. The Sanctions Act also requires you to check whether there are active, or historical, sanctions enacted against the client. It is also necessary to check whether the client appears in the insolvency register. If any of these conditions is the case, a business relationship with this client can cause reputational damage.
In conclusion
Once you have determined the client-related risks, you should draw up a risk assessment of your business relationship with this client. More on this in the following blog – Determine the risk assessment.