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Do you know your client regulations and your lending providers | Global legal practice
As part of its credit due diligence procedure, a client's loan originator must obtain information from a client's creditor. These updates describe what borrower should look to creditors for in terms of the "Know Your Customer" policy. Do you know that your client policy is intended to protect or prohibit the money Laundering and other fraudulent activity carried out by an innocent creditor?
As part of due care, a prudent businessman can concentrate on the borrower's loan portfolio, but must also check who the client is and how much he has. Banks must make sure that they have received all the necessary information to "know their customers".
" Banks are obliged to set up and execute a risk-based client identifier programme (CIP) that is appropriate to their scale and operations and included within their official anti-moneylaundering compliance programme. Irrespective of which department grants the loan to the beneficiary institution - as long as the beneficiary institution grants the loan itself, the KVP is used.
Also other types of banks (e.g. broker-dealers) are obliged to have CIPs. U.S. Treasury Department's U.S. Treasury Department's Fund Crimes Enforcement Network (FinCEN) is the U.S. federal anti-money laundering regulator. FCCEN rules demand that a banking institution develops "risk-based" processes to check the identities of each client so that it can make an appropriate decision as to whether it knows the true identities of clients.
During the development of KVP processes, the institution must take into consideration all exposures of relevance to its operations. It may involve an assessment of the risk arising from the scale and geographical position of the institution, the different kinds of clients it caters for, the many different kinds of goods and sevices it offers and its method of opening and managing financial statements.
Consequently, the KVP methods applied in the context of a car loan to a client who is likely to be an entrepreneur will differ from those applied when the institution is considering a multi-million dollars company loan. The client must obtain certain routinely specified information, such as name, postal code and TIN (Taxpayer Identifier) number.
The designated obligor to whom the loan is given is usually the client. In cases where a PIN has not yet been obtained for a new company, the CB of the institution should contain a procedure for dealing with clients who have requested but not yet obtained the PIN.
KVP rules allow the institution to continue with the opening of the accounts, but to ensure that the incoming payment is made within a suitable deadline after the opening of the accounts. On the other hand, the KVP of a particular institution could stipulate that the institution waits for the loan before it closes, and it is acceptable for the institution to include this in its KVP.
Moreover, in many cases of corporate lending, there are a number of stakeholders who form "the customer" and may be engaged in the deal - affiliates, parents, third guarantees, even potential sole proprietors at the top - and the firm will obtain such information from all thirdparties as it considers necessary to reasonably infer that it knows its customers.
Often bankers will be mistaken on the side of getting more information and economic agents may have to supply much more information than otherwise anticipated to obtain a loan. Furthermore, bankers must take steps to check the customer's identification. Although it may do so through its own research (e.g. by gathering a copy of a commercial data base), it will probably also ask for records of the suggested borrowers (and possibly the syndicate to which the borrowers may belong), such as the company's organisational records, commercial licences and good credit ratings, declarations and accounts, and banking credentials.
There may be cases in which, in supplement to the information and records relating to the Mortgagor, the Company may require information relating to persons authorised to sign or controlling a Loan, as well as those authorised to sign, if the above mentioned records and verifications procedures relating to the Mortgagor are found to be inadequate to enable the Company to comply with the required identification checks.
In the event that the institution cannot be sufficiently certain that it knows the real identities of customers, it may reject the credit request. In contrast to a loan to a private person, with a commercial loan, there is usually no particular request that the banks give a ground for rejection of the request.
It is only if the Client considers that there is a possible discrimination ground for rejecting the request that the Client may consider further investigation into the ground for the refusal. In the event that senior managers believe that the request for supplementary documents and information is beyond the bank's control, they may ask the company why they are asking for a particular item of information or information, particularly if the information or documents required do not actually or would not normally do so.
An entity should not anticipate that the financial institution will know all the particulars of its normal operations or the sector to which it belongs. Both the company and the institution should seek to work together to provide the institution with the information and documents it needs without the need for the institution to review its normal procedures or to face a possible refusal of the loan request.
It is the duty of the banking institutions to keep a record of the information and documents obtained from the Client and of the information produced by the banking institution during the verifying procedure. As a rule, the information must be kept by the institution for five years after the closure of the loan accounts. KVP must also contain mechanisms to inform clients in a timely manner that the institution is seeking information to check their identity.
"In order to help the goverment combat the financing of terror and terrorism and money laundering, the Federal Act demands that all banks receive, check and store information that will identify every individual who opens an individual checking out. "As part of the review, a banking institution must establish whether the client is on a manifest of "known or alleged acts of terror or acts of terrorism" published by a government authority and identified as such by the Ministry of Finance in concert with the regulatory authorities of the United States.
" Currently, there are no such listings, but as part of its duty of care to comply with commercial sanction legislation, a particular banking entity will review a prospective creditor (and others within the corporate group) against the U.S. Department of the Treasury specially designed national list. Lastly, a banking entity may determine in its KVP process whether and when it will base its assessment of a prospective new client on another banking entity (including a subsidiary of the banking entity) using the bank's own KVP process.
A company looking for a loan, for example, may be directed to a particular banking establishment by another of its current counterparts. Either party may be confident that another party will conduct all internal KVP proceedings with regard to a prospective client, provided that: such confidence is appropriate under the given conditions; the other party consents by means of a letter of agreement to attest each year to the existence of its anti-money-laundering compliance programme and that it will comply with (or have executed by a representative of) the Bank's specified KVP standards.
Apart from such an agreement, the CB may obtain information about a client as part of its due diligence procedure, but must carry out its own review to establish whether it can reasonably depend on that information.