COVID 19 fast-tracked KYC

COVID 19 fast-tracked KYC

Maria Holečková | 09. 11. 2020

Any global shock to mankind and economy such as Covid 19 restricts free movement of people, goods, and services. Moreover, it could completely change social interaction.

Among others, customer due diligence, especially compliance with principles of the “know your client” (hereinafter only the KYC) policy changed. The “know your client” policy is to be [1] implemented by obliged entities defined by Act No. 253/2008 Coll., on selected measures against legitimization of proceeds of crime and terrorist financing, as amended (hereinafter referred to as the “AML Act”). [2] Obliged entities short of staff operating in quarantine were unable to implement “know your client” processes as usual.

The AML Act stipulates that obliged entities must identify their clients and, in case of legal entities, the beneficial owners. Obliged entities must understand the purpose and intended nature of the relationship with the client and collect information about the client or the beneficial owner of the legal entity.

Identification of clients is a key element in the prevention of money laundering and the fight against terrorism.

As part of the client identification process, the obliged entities listed in the AML Act (see the AMLacademy.TV home page) are required to obtain original documents. How to obtain such documents if employees work from home? Who guarantees that the documents will not be abused and be safely archived? Do we have any other choice? For answers to this and many other questions, please read the KYC section.

During the spring lockdown, financial institutions were neither able to perform face-to-face identification nor receive documents via the post. It didn’t take long for the obliged entities to switch to identification without the client present.

“The latest technical developments in the digitalisation of transactions and payments enable a secure remote or electronic identification. Those means of identification as set out in Regulation (EU) No 910/2014 of the European Parliament and of the Council (eIDAS) [3] should be taken into account, in particular with regard to notified electronic identification schemes and ways of ensuring cross-border legal recognition, which offer high level secure tools and provide a benchmark against which the identification methods set up at national level may be checked. In addition, other secure remote or electronic identification processes, regulated, recognised, approved or accepted at national level by the national competent authority may be taken into account.” [4]

The eIDAS Regulation stipulates a legal framework for electronic signatures, electronic seals, electronic time stamps, electronic documents, electronic qualified registered delivery services and certification services for website authentication in order to increase credibility of electronic transactions by providing a common basis for secure electronic communication in the European Union internal market.

In addition to the above electronic identification, some jurisdictions have developed other useful remote identification systems. For example, Bundesanstalt für Finanzdienstleistungsaufsicht (hereinafter only the “BaFin”) was, as early as in 2014, the first institution in the EU to enable videoconferences for the KYC processes.

As indicated by BaFin in its Circular No 1/2014 (GW) [5] to obliged entities, that “personal presence” may also be assumed in certain circumstances, especially if the parties participating in the identification process cannot be physically seen, but may nonetheless be seen visually through video transmission and it is simultaneously possible to make verbal contact and to verify the identity of the counterparty, in this respect by means of an identification document. For the current regulation of video identification please continue reading my future articles.

In conclusion, there is something positive to this globally unfavourable situation – we are facing new challenges. Having realized that some processes may be inefficient or redundant, obliged entities are now launching and disseminating new processes incredibly fast. The changes are beneficial for both clients and businesses. The clients will receive improved service quality and businesses will find the new systems time saving. It is more than obvious that digitalisation has increased speed – a development which will positively affect the KYC processes.

If you are interested in KYC processes and their implementation in the EU member states, register to receive our articles and we will keep you informed.

[1] One of the factors which are diligently checked and emphasized in the course of targeted checks of obliged entities´ measures to counter legitimization of proceeds of crime and terrorist financing is whether the obliged entity regularly gathers sufficient information needed for the continuous monitoring of the business relationship – the so-called ‘know your client’ principle.

[2] Act No. 253/2008 Coll., of June 5th, 2008 on selected measures against legitimization of proceeds of crime and terrorist financing, as amended. In: Collection of Laws. 2008. Available online. [cit. 2020-06-06].

[3] Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC. In: Official Journal of the EU. 28.8.2014, L 257. PDF online. [cit. 2020-06-06] p. 73-113.

[4] Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU. In: Official Journal of the EU. 19.6.2018, L 156. PDF online. [cit. 2020-06-06] Section 22, page 47.

[5] FÜRHOFF, Jens. Circular 01/2014 (GW)- suspicious transaction report in accordance with sections 11, 14 of the GwG. In: BaFin Federal Financial Supervisory Authority. 10.11.2014, (ref. GW 1-GW 2001-2008/0003). Available online. [cit. 2020-06-06].

Maria Holečková

Back Office manager and lecturer of professional seminars with experience in the field of financial markets with a focus on client service and ‘Know Your Customer procedures’ (KYC)
Through daily contact with the ‘Back Office’ and the consistent application of KYC procedures, she encountered a wide range of situations, some of which resulted in the reporting of a suspicious transaction (OPO).