The “Agreement on the Code of Conduct with regard to the Exercise of Due Diligence” (CDB 20) was issued by the Swiss Bankers Association (SBA) and will enter into force on 1 January 2020, at the same time as the new AMLO-FINMA. Stricter self-regulation is an important building block in the fight against money laundering and terrorist financing. What are the implications of the revised due diligence standards for financial intermediaries?
The most important changes in brief
- The threshold for identifying the counterparty in cash transactions will be lowered from CHF 25,000 to CHF 15,000;
- An account with incomplete documentation and information about the contracting party, the beneficial owner or the controlling person must now be blocked for all incoming or outgoing transactions after 30 days compared to 90 days in CDB 16. If only minor details and/or individual documents are missing, the account may be used by way of exception if such exception appears appropriate on the grounds of a risk-based assessment. If the missing information and/or documents are not provided, the business relationship must be terminated in any case;
- The FINMA Circular on video and online identification has been formally and materially included in the CDB 20;
- The abbreviated process for simple cases as part of the self-indictment disclosure has been specified. Audit firms will now be more involved in the process as the bank hasto submit all relevant documents including a report by an audit firm. The report of the audit firm must at least describe the underlying facts and indicate the regulations of the code of conduct concerned.
Implications for financial intermediaries
While the core content of the previous Code of Conduct for Banks remains unchanged, the implications of the changes could be material for the financial intermediaries concerned, for instance:
Cash transactions: for cash transactions of CHF 15,000 or more, the contracting party and beneficial owner must be identified and established if the bank has no business relationship with this party. The financial intermediaries concerned must train their employees and amend the relevant processes and controls (e.g. forms, transaction monitoring, compliance controls).
Duty to document: banks’ internal rules and regulations have to reflect the shortened period for providing documents and other information about the contracting party, beneficial owner and/or controlling party at the opening of business relationships. Furthermore, the onboarding processes have to be amended with stricter controls around adherence to the deadline, the blocking for incoming and outgoing transactions as well as the termination of the business relationships.
CDB 20 will allow the financial intermediary to make a risk-based assessment at the time when the documentation obligation is being fulfilled, thus giving it greater leeway. For a financial intermediary to be able to make use of such an exception or deviation in the form of its own risk assessment, the relevant procedures and processes must be reflected in the internal rules and regulations.
Video and online identification: By including the FINMA Circular on video and online identification in the CDB 20, identification by video is treated in the same way as a face-to-face identification, and online identification is equated to onboarding by way of correspondence.
Transitional provisions: CDB 20 will become applicable to all new business relationships entered into after 1 January 2020 or to those for which the due diligence procedures have to be repeated after 1 January 2020. For already existing business relationships, the previous documentation is considered sufficient.
What are the next steps for financial intermediaries?
There is still some time left to implement the CDB 20 amendments into daily operations. Nevertheless, it is advisable for financial intermediaries to address the following issues in the coming months:
- Which internal guidelines, regulations and instructions need to be revised or, if necessary, drawn up?
- Where will there be a need for training and which employees need to be trained?
- What is the impact on the institution’s risk appetite, risk management and reporting?
- To what extent should management information and general reporting be adapted?
- Which adjustments have to be made to processes and controls?
- How will customer communication have to be handled, especially in the event of possible breaches of the code of conduct?
- Are quality assurance measures necessary, especially during the first months after implementation?
Our services and further information:
- Clarity on Financial Crime in Banking
- Federal Council defines thrust of follow-up work on FATF mutual evaluation report on Switzerland
- Financial Services Hub