AMLG11500 - Guidance for all sectors: Simplified Due Diligence
15. Simplified due diligence (SDD)
15.1 What is SDD?
SDD is a simplified form of due diligence which your business may apply in some cases where the business relationship or transaction is considered to present low risk of money laundering, terrorist financing or proliferation financing.
15.2 When is it appropriate to apply SDD?
To decide whether a customer is suitable for SDD you must consider the following:
- Your own risk assessment.
- the National Risk Assessment.
- This guidance and any further relevant guidance referred to within it.
- Risk factors including, amongst other things, the type of customer, the underlying product, service, transaction, or delivery channel and the geographical risk factors.
15.3 Types of customer that may indicate lower risk
- A public authority or publicly owned body in the UK.
- A financial institution that is subject to AML supervision in the UK or equivalent regulation in another country.
- An individual resident in a geographical area of lower risk.
- A company whose securities are listed on a regulated market.
- Beneficial owners of pooled accounts held by a notary or independent legal professional, provided information on the identity of the beneficial owners is available upon request.
- A European Community institution.
15.4 Products, services, transactions and delivery channels that may indicate lower risk
Products, services, transactions and delivery channels that may indicate lower risk include:
- A life insurance policy for which the premium is low.
- An insurance policy for a pension scheme which does not provide for an early surrender option and cannot be used as collateral.
- A pension, superannuation or similar scheme where the scheme provides retirement benefits to employees, contributions to the scheme are made by way of deductions from wages; and the scheme rules do not permit the assignment of a member's interest under the scheme.
- A financial product or service that provides appropriately defined and limited services to certain types of customers to increase access for financial inclusion purposes in the United Kingdom.
- A product where the risks of money laundering and terrorist financing are managed by other factors such as purse limits or transparency of ownership.
- A child trust fund within the meaning given by section 1(2) of the Child Trust Funds Act 2004.
- A junior ISA within the meaning given by regulation 2B of the Individual Savings Account Regulations 1998.
15.5 Geographical factors that may indicate lower risk
Geographical factors that may indicate lower risk include whether the country where the customer is resident, established or registered or in which it operates is:
- The UK.
- A third country which has effective systems to counter money laundering and terrorist financing.
- A third country identified by credible sources as having a low level of corruption or other criminal activity, such as terrorism, money laundering, and the production and supply of illicit drugs.
- A third country which, on the basis of credible sources, such as
evaluations, detailed assessment reports or published follow-up reports
published by the Financial Action Task Force, the International Monetary Fund,
the World Bank, the Organisation for Economic Co-operation and Development or
other international bodies or non-governmental organisation:
- Has requirements to counter money laundering and terrorist financing that are consistent with the revised Recommendations published by the Financial Action Task Force in February 2012 and updated in October 2016; and
- Effectively implements those Recommendations.
Important note:One factor, on its own, should not be taken to indicate low risk. You must consider all the factors and all the information that you have must indicate that the business relationship or transaction presents a low degree of risk. For example, a customer from another EEA state is not automatically low risk simply because they are from the EEA. You must not assume that a customer is low risk to avoid doing an appropriate level of CDD. |
Customers well established in the community, with professional standing or those who you have known for some time, may merit being categorised as low risk but you still must have evidence to support this decision. A business or person who has strong links to the community, is well established with a clear history, is credible and open, does not have a complex company structure, with transparent source of funds and where there are no other high-risk indicators may be suitable, subject to your risk assessment, for SDD.
15.6 Applying SDD
If you apply SDD HMRC expects you to ensure that:
- You can demonstrate, and provide evidence to support, why you have made this decision and deviated from standard CDD which is the expected starting level of due diligence.
- The decision to apply SDD is supported by your customer risk assessment.
- Your decision is not contradictory to information on risk provided by HMRC.
- You monitor the business relationship or transactions to ensure that there is nothing unusual or suspicious from the outset.
- You conduct ongoing monitoring in line with your risk assessment to ensure that the circumstances on which you based your original assessment have not changed.
- Enhanced due diligence does not apply.
- The customer is not established in or operates from a FATF Call for Action country. .
- The customer is not a politically exposed person, or a family member or known close associate of a politically exposed person.
- The customer’s source of funds or wealth are transparent and understood by your business.
- Where the customer is not an individual, that there is no beneficial ownership beyond a single UK legal entity customer.
- Where a person says that they are representing a customer who may be low risk you should check that they have the authority to act for them.
You must not continue with SDD if:
- You suspect money laundering, terrorist financing or proliferation financing
- You doubt whether documents provided for identification are genuine.
- You doubt whether the person whose identity you are seeking to identify is the one demonstrated by the documentation
- You suspect that the documents obtained for identification maybe lost, stolen, or otherwise fraudulently acquired
- Any circumstances change and your risk assessment no longer considers the customer, transactions, or location as low risk.
15.7 What does SDD involve?
Applying SDD does not mean you do not have to do CDD, and you are still required to identify and verify customers’ identity and take reasonable measures to verify the beneficial owners’ identity. Under SDD, however, you can change when it is done, how much you do, or the type of measures you take to identify and verify a person. However, this does not mean exemption from CDD and any delay to CDD must not be prohibited by any other legal requirement you are subject to. HMRC expects that SDD would be conducted no more than 14 days from the start of the business relationship or transaction.
SDD measures you may apply include the following:
- Use at least one authoritative identity
document to verify identity that:
- Demonstrates the person’s name, and (at least) either their address or date of birth, and;
- Contains security features that prevent tampering, counterfeiting and forgery, and;
- Has been issued by a recognised body that has robust identity proofing measures e.g. a passport.
- Use information you already have to determine the nature or purpose of a business relationship without requiring further information, for example, if your customer is a pension scheme you can assume the purpose of that scheme.
- Adjust the frequency of transaction monitoring such as checks triggered when a reasonable threshold is reached.
- Adjust the frequency of customer due diligence reviews, for example, to when a change occurs.