Initially, the procedure named “Know your customer” (KYC) was used as a term within the scope of the bank and stock exchange regulation for financial institutions and bookmaker’s offices and any other companies processing individuals’ funds, which meant that they should identify and prove identity of a counterparty as well as identify a source and beneficiaries of funds in order to determine legitimacy of the monetary funds before carrying out a financial transaction. Such practice helps to prevent money laundering, terrorist financing and tax evasion.
In this article, we are going to consider the KYC procedure of the companies providing fiduciary services in Cyprus (Administrators). Korpus Prava Corporate Services Ltd. is one of such companies
The KYC procedure is provided for by the following Cyprus legislative acts:
The latter places Administrators on the same footing as financial institutions, in particular, as regards requirements to the KYC procedure and accepting customers for servicing. Requirements to the financial institutions are provided for by the abovementioned regulations as well as EU Directives.
The KYC procedure is based on the risk estimations as well as basic identity information for customer identification. The companies aim to assess the risk of each individual customer’s involvement in illegal activity.
The basic standard KYC aspects are as follows:
Identification of the customer, both at company registration and at transfer of the customer’s company for servicing, represents an important phase of the KYC procedure. When accepting the customer, the Administrator shall request information and documents related to an individual customer himself/herself as well as to his/her future or existing business. After obtaining information and relevant documents the Compliance officer reviews the same, assess risks and makes decision on whether the customer is to be accepted or not. If a new customer does not provide the Administrator with all the required information, the latter shall be entitled to refuse servicing the customer. If the customer whose company is already being serviced fails to provide all the required documents or information regarding himself/herself personally or his/her company’s activity, the Administrator shall cease business relations with such customer.
Client acceptance policy shall be developed by the Administrator incompliance with the laws and corporate policy. When accepting the customers, the Administrator categorizes risks and decides to which customers it may provide its services. The Cyprus Administrator shall not accept the customer for servicing in the following cases:
When accepting the client the Compliance officer assesses the level of risk to which the client and his/her business are exposed. There are three basic risk levels: high, medium and low. The risks are also classified as: customer risks, company risks and geographic/exposition risks. A number of factors such as the customer’s behavior, history and nature of conduct of business, customer’s political activity shall be taken into account when determining the customer risks. When considering company risks such factors as the company structure, duration of its activity, its turnover and nature of its activity shall be reviewed. Such factors as jurisdiction of the customer’s place of location and his/her company’s registration shall be taken into account when considering geographic/exposition risks.
In the context of the customer risks the customer may be assigned a high level of risk in the following circumstances: Detection of behavioral risks: customer is represented by third parties, was identified other than through a personal meeting; customer fails to clearly define the purposes of registration (transfer) of the company, describe the expected transactions diagram; customer fails to confirm his/her source of income; company has a lot of related accounts; customer is of ill repute, mass media contain negative information on the customer; a prior Suspicious Activity Report (SAR) or a Currency Transaction Report (CTR) related to the company. Detection of business risks to which the following activities are related: activity connected with the production and trade of arms, precious metals, objects of art, antiques, luxury items, realtors’ activity, non-regulated profit making organizations, non-regulated charitable foundations, currency exchange, companies providing financial intermediary services, online gambling (via the Internet), cash transactions. Detection of the customer’s relation to any political activity as well as his/her connections with any politically exposed persons.
In the context of the company risks the customer may be assigned a high level of risk in the following cases: Detection of structural risks: complicated company structure with no sufficient grounds therefore, presence of bearer shares, trust accounts, registration of the company in the offshore centers, company accounts opened in favor of 3 persons. Companies incorporated less than a year ago are classified among the companies with high risk exposure. The company’s turnover related to one specific transaction exceeds the expected turnover by over 30%.
In the context of the geographic risks the customer may be assigned a high level of risk if the company is incorporated in the state which is specified on the following lists established by the Central Bank of Cyprus, Directive of the Cyprus Securities and Exchange Commission 2005/60/ЕU:
The customer shall be assigned a high level of risk if:
The customer shall be assigned a low level of risk in the following cases:
In all other cases, the customer shall be assigned a medium level of risk.
When assessing risks and making decision on whether to accept the customer the Compliance officer shall make a comprehensive decision taking into account all the information and documentation provided by the customer which not always may be based exclusively on the formal definition of the level of risk. For instance, if the customer was not introduced in person but a shareholder of the serviced company is represented by a large public company data on which is open to public, the Compliance officer may accept the customer in accordance with the simplified procedure provided for such persons by the laws.
The Compliance officer monitors the company activity while it is being serviced by the Administrator, regularly monitors transactions on the company’s bank accounts, verifies legitimacy of each and every transaction, conformance to the declared business profile of the company, is entitled to request additional documents and information on the counterparties. The Compliance officer manages risks through identifying the customer’s personality, his and his company business activity. Such measures are aimed at prevention of involving the Administrator in any illegal activity.
It must be noted that tightening KYC procedure on Cyprus, which took place relatively recently is connected with tightening national laws under the influence of EU and USA. For example, provision of corporate and fiduciary services is a regulated type of activity on Cyprus since 2012 which performance requires a special license. Of course, such client acceptance procedure may confuse the businessmen who worked with this jurisdiction before and are not accustomed to such close attention. However, such measures promote upgrade of business environment, improve Cyprus reputation as a jurisdiction in the global business community, bring Cyprus to the European level making it a territory attractive in terms of investment.
Your subscription to our journal will definitely boost the efficiency of your specialists and downsize your expenses for consultants.
The journal is available free of charge in the electronic version.
Free DownloadPlease,
Fill the Form for Subscribe
Error!
Something happend. Try again later.
