Simplified Due Diligence Report

When did Simplified Due Diligence become not so simple?

 

Earlier this year the AFB received a query from the Editorial Panel of the Joint Money Laundering Steering Group (JMLSG) regarding how regulated firms currently undertake Simplified Due Diligence (SDD) in compliance with the Fourth Money Laundering Directive (4MLD). The Editorial Panel was keen to have this insight to help shape the current JMLSG Guidance to better reflect the realities of SDD post-4MLD implementation.

Following responses from over 30 AFB member banks which detail their latest thinking with respect to their SDD processes, the AFB and BDO have analysed the results to provide a high-level summary of the key themes identified, followed by regulatory and industry best practice on how banks should approach SDD.

 

The full report is available below:

 

The Report's key finds were:

  1. Over 20% of respondents indicated that they no longer apply SDD to other equivalently regulated Financial Institutions (FIs);

  2. EEA banks feel less comfortable in conducting SDD, with more stating they no longer apply SDD;

  3. 34% of respondents that do still apply SDD only assess two factors when determining the applicability of SDD rather than undertaking a holistic customer risk assessment;

  4. Almost 90% of respondents noted ‘country risk’ as a key factor when considering if SDD is appropriate;

  5. Over 50% of respondents state that PEP, sanctions and adverse media screening on the customer plays a key role in assessing the customer as low risk;

  6. 10% of respondents are not identifying the customer’s beneficial owners when applying SDD, a breach of MLR 2017;

  7. Whilst all respondents broadly understood that SDD represents a loosened form of Customer Due Diligence (CDD) rather than an exemption from it, the results showed a substantial disparity of approach in what information and/or documentation banks collect when conducting SDD. This suggests that, in practice, there is uncertainty amongst the banking community as to what SDD truly means.

 

If you require any further information on the report, please do get in touch with the team here at the AFB.