Customer due diligence: a new level of commitment among bank supervisors

Banking regulators from around the world today pledged their support for the standards set out in the Basel Committee on Banking Supervision's Customer due diligence for banks report. Regulators representing nearly 120 countries at the International Conference of Banking Supervisors (ICBS) announced their commitment to fight the funding of terrorist activities and the laundering of funds related to these activities by strengthening enforcement of measures that make it harder to disguise the ownership of bank accounts.

The adoption of appropriate due diligence standards is an essential part of banks' risk management, needed to safeguard confidence and the integrity of banking systems. It is also critical in the fight against terrorist funding around the globe. Participants at the conference, held in Cape Town, South Africa, on 18-19 September, endorsed the following measures:

• adoption of know-your-customer procedures within individual jurisdictions, as part of effective customer due diligence programmes; and
• sharing of information related to terrorist financing and money laundering with other supervisors and with law enforcement agencies.

Improving customer due diligence

Key elements of the Basel Committee's Customer due diligence for banks report, which ICBS attendees recognised as the agreed standard, are: thorough customer acceptance and identification practices, ongoing transactions monitoring and a robust risk management programme for banks. The report provides a benchmark for all supervisors to proceed with the work of designing or improving national supervisory practice.

Conference participants acknowledged that customer due diligence is a prudential responsibility and agreed to promote the report's principles for adoption by their banks and other deposit-taking financial institutions. They undertook to make every effort to ensure that home supervisors of foreign-owned financial entities in their countries would face no impediments in accessing information, including during on-site examinations, which are needed to verify compliance with due diligence policies and procedures. They further agreed that an important factor in developing an effective due diligence programme is ongoing employee training.

All participants were encouraged to conduct a self-assessment exercise to determine the extent to which their jurisdictions comply with the recommendations of the due diligence paper.

Combating terrorist financing

Participants agreed that an effective customer due diligence programme is a prerequisite for the identification of bank accounts related to terrorism. For banking groups operating internationally, customer due diligence and risk management should be conducted on a group-wide consolidated basis.

Attendees further noted that a critical element in the tracking of terrorist assets and financial transactions is access to, and the sharing of, information by competent authorities. Participants undertook, within the confines of applicable laws and regulations, to give full assistance to other supervisors and law enforcement agencies in the suppression of terrorist financing and agreed that banking secrecy should not be an impediment to the sharing of such information. They encouraged information sharing either directly or through the network of financial intelligence units.

Participants recognised the significant effort being made by financial institutions to notify the authorities if they were maintaining accounts in the names of persons or organisations identified as possibly having terrorist ties. They agreed to cooperate by circulating lists of suspect names and encouraging their financial institutions to respond. The participants recommended that follow-up to responses from banks should be handled primarily by financial intelligence units and law enforcement agencies, rather than through supervisory channels, and financial institutions that have shared information should be protected from actions under civil liability and privacy legislation.

Note for editors

The International Conference of Banking Supervisors is a biennial event, held since 1979, which is attended by senior representatives of supervisory authorities worldwide. Its aim is to promote cooperation among national authorities in the supervision of international banking and to facilitate exchanges of views on a range of current issues of common concern.

Customer due diligence for banks (October 2001) was prepared by the Working Group on Cross-border Banking, a working group of the Basel Committee which includes selected members of the Offshore Group of Banking Supervisors (OGBS). Its conclusions have been endorsed by the OGBS as well as by the Basel Committee. Customer due diligence for banks is available on the BIS website at www.bis.org/publ/bcbs85.htm .

The Basel Committee issued a press statement on 17 April 2002 supporting collective action to identify and halt terrorist funding. The statement also described ongoing work in relation to due diligence and information sharing in the context of combating terrorist financing.

Financial intelligence units are central, national agencies responsible for receiving (and, as permitted, requesting), analysing and disseminating to the competent authorities disclosures of financial information concerning suspected proceeds of crime, or required by national legislation or regulation, in order to counter money laundering.