Sunday, 25 December 2016

How To Perform KYC Checks on a Central Bank? How To Onboard a Central Monetary Authority?

Central Banks are not a very difficult entity to on-board as a counter party because risk based approach will suggest that it is one of the least risky proposition if done correctly.

Here are the main steps to perform counterparty check on a Central Bank:

1.       Check on Bank for International Settlements (BIS) that it listed on that website.  The name should match exactly and link should take you to your potential counter party’s website.  The website link for BIS is https://www.bis.org/ .  This is the confirmation that your counterparty is a central bank.

2.       Get the proof of existence and name. This can be achieved by using central bank’s website and Bankers Almanac. Bankers Almanac is an acceptable source for most banks.
This is not a free resource and your organization will have to pay for this website but it is very important source for banking institutions as it can confirm a lot of information which is accepted by United Kingdom & United States regulatory authorities.

3.       Date & country of establishment of the central bank. For example if you are working on Central Bank of Russia, you can use the following link from client’s website to establish date and country of establishment.  https://www.cbr.ru/Eng/today/?prtid=cbrf_sub .
This will provide you the history of the central bank. As we all know, Central Bank of Russian Federation came into being after the dissolution of Soviet Union.


4.       Next you need to establish the nature of business for your client. In our example, Central Bank of Russian Federation is a monetary authority of Russian Federation. It sets monetary policy and performs other duties which are the norm for Central Banks all over the world. You can evidence this nature of business by using clients’ website https://www.cbr.ru/Eng/today/?PrtId=bankstatus . This should suffice for regulatory purposes but if you need to add extra information than you can use BusinessWeek https://www.bloomberg.com/news/articles/2016-11-29/russia-s-central-bank-wants-you-to-believe .  This is a free resource but not accepted by many organizations. Having said that it can definitely be used as a secondary resource.  As a primary source, you can use Bankers Almanac which will provide you most of the information you need to on-board a central Bank.  

5.       Once you have confirmed the following information :
a.                  Client exists
b.                  Name is correct
c.                  Nature of business is as per your understanding
d.                  Date and country of establishment

It is time to check for controller/directors. This is very important part of your job as this will determine who actually controls the bank and how much risk it poses to your organization. Once gain you can either use Bankers Almanac or client’s website https://www.cbr.ru/Eng/today/?PrtId=dir to get this information.  For most other types of entities you can use an audited annual report for much of the above information but Central Banks do not normally have audited annual reports, so you need to use alternate sources. Once you have all the names of controllers and directors of the bank, you need to screen them for PEPs, Sanctions lists and any adverse news coverage. If you have a hit for sanctions, you generally cannot conduct business. Having PEPs (politically exposed persons) linked to the bank, raises the risk.  Having said that, a central Bank is a state owned entity and for that reason anyone related will be classed as PEP anyway.
Usually, you need to have IDs & addresses for controllers/directors but for central banks, this is not a requirement at the moment.


6.       Normally, the for any entity ownership is a big risk factor and you must establish and evidence who has the ultimate control but for a central bank, you know that it will be controlled by a specific state. In our case, Central Bank is owned by Russian Federation. You can evidence this information from client’s website or the Bankers Almanac.

7.       You also need to classify your client for MiFID purposes. Central Banks are eligible         counterparties and this can evidenced by using BIS https://www.bis.org/.
The above mentioned points are the regulatory requirements to make sure that our counter party is reliable, compliant with Financial Action Task Force (FATF) http://www.fatf-gafi.org/ . Central Banks are not that difficult to on-board for the very reason that they are Central Monetary Authorities of their respective countries which regulate/supervise financial institutions in their jurisdictions.  
Most Central Banks are safe, some belonging to tiny nations may have a risk profile which may not be as per your risk appetite but generally speaking, these are safe to on-board.

As with all entities, your major risk factor comes from the following:
a.         Jurisdiction
b.         Products they are going to use with your organisation
c.         Controllers/Directors &
d.         Ultimate Beneficial Owners.
e.         Client’s own AML controls

As long as you have a complete picture and can answer all the above questions with satisfaction, it is safe to on-board central bank as a client. It goes without saying that continuing monitoring is always required to check for any changes in related parties which may change the risk profile of your client. At which point you may or may not want to keep the client. 

No comments:

Post a Comment

Thanks for leaving comments. You are making this discussion richer and more beneficial to everyone. Do not hold back.

Quotation of the Day

code