Client Onboarding, KYC and Anti-Money Laundering in Operations
What this domain tests
This domain tests the risk-based approach to customer due diligence, beneficial ownership, screening and monitoring, and the operational controls that keep onboarding defensible under FATF standards and local AML rules.
Customer due diligence
- CDD: identify the client, verify identity using reliable independent sources, understand the purpose and intended nature of the relationship.
- Beneficial ownership: identify the natural persons who ultimately own or control the entity, typically at a 25% threshold, and verify them.
- EDD is required for higher-risk situations: PEPs, high-risk jurisdictions, complex structures, correspondent relationships.
- Sanctions screening at onboarding and on an ongoing basis against consolidated lists; hits must be investigated and resolved, not simply cleared.
Ongoing obligations
- Risk-rate the client and set a review cycle; triggers include a change of control, unusual activity, adverse media or a new jurisdiction.
- Transaction monitoring alerts are investigated and, where suspicion remains, a SAR/STR is filed to the FIU. Tipping off the client is a criminal offence.
- Records must be kept for five years after the relationship ends under the UK Money Laundering Regulations.
- FATCA and CRS tax classification is collected at onboarding alongside KYC.
Worked example
A fund incorporated in the BVI applies, with a nominee shareholder and an investment manager in Cyprus. Reasoning: the nominee is not the beneficial owner, so operations must look through the chain to the underlying investors and identify any person holding 25% or more, verifying each with passports and proof of address. The BVI and Cyprus elements plus the nominee structure push the client to high risk, requiring EDD, source-of-wealth evidence, senior management approval and enhanced ongoing monitoring. The fund's LEI and tax classifications are captured in the same onboarding pack.
Traps that cost marks
- Accepting the nominee or corporate shareholder as the beneficial owner.
- Treating PEP screening as a one-off onboarding check.
- Failing to distinguish source of funds from source of wealth.
- Discussing a SAR with the client, which constitutes tipping off.