Financial Markets Standards Board (“FMSB”) has today published its Standard for Client Onboarding: Documentation and Processes and Annexes as final.
The Standard was developed by a Working Group made up of representatives from FMSB Member firms and previous participants from the Post-Trade Taskforce and seeks to harmonise the data and documents required from clients, as well as codifying elements of best practice in the interaction between clients and onboarding firms, to create greater efficiency. The Standard has been drafted to allow onboarding firms to continue to fully apply the UK’s Risk Based Approach to KYC and provides more granular, documentary guidance for the practical implementation of the UK Money Laundering Regulations.
The Standard is structured in two main parts:
- Core Principles: which relate to the way in which onboarding firms choose the required data points and source relevant evidence in the process of client onboarding, and
- Annexes: including the Documentation Requirements, which consists of a list of the data points identified by participating firms, universally acceptable sources, and commonly available documents which can populate and evidence these data points to the level of credibility required.
Siobhan Clarke, who chaired FMSB’s Client Onboarding Working Group, said:
“This Standard is a big step forward in terms of harmonising and improving the onboarding process for both clients and firms. I would like to thank FMSB and all those who participated in the Working Group for their contributions to make this happen. FMSB provides a unique forum to debate, but crucially also agree and implement solutions to issues like onboarding, which have been frictions in the market for a long time.”
David Hudson, Chair of FMSB’s Post-Trade Committee, under which the Working Group operates, said:
“Inefficiency in client onboarding was rightly highlighted by the Bank of England Post-Trade Taskforce as an area where the industry needed to establish a common approach for the benefit of UK financial services as a whole. FMSB came forward to take on that role and this publication proves what the industry can achieve when working together, in areas where regulation may not be appropriate. I salute the Working Group for bringing together stakeholders with often differing views to agree this Standard, which offers a practical solution to a process long overdue for reform. All firms, including those who may not yet be FMSB Members, should be looking to implement this and show their clients they are at the forefront in terms of their onboarding processes.”
Andrea Bowe, Director of the Financial Conduct Authority’s Specialist Directorate, added:
“We welcome this work from the FMSB, noting the considerable effort that has been undertaken with multiple stakeholders to reach a common position. The UK’s high standards for Customer Due Diligence must be maintained and continually improved and we look forward to seeing further updates on the application and effectiveness of the Standard.”
Myles McGuinness, FMSB CEO, said:
“Today’s publication marks the launch of the first Standard in final form under the auspices of our Post-Trade Committee, which took on the important role of practically implementing the recommendations of the Bank of England’s Post-Trade Taskforce. I would like to thank David Hudson, Siobhan Clarke and all those involved for their hard work getting to this stage. It shows what FMSB can do in terms of industry-led operational solutions. There is more to come next year as we continue to develop our suite of Standards and guidance to support the development of operational processes in wholesale markets.”
The Joint Money Laundering Steering Group added:
“The Joint Money Laundering Steering Group (JMLSG) notes the publication of the FMSB Standard for Client Onboarding (Standard). Firms should continue to refer to JMLSG Guidance (as it is HM Treasury approved guidance) on how to comply with the UK Money Laundering Regulations (MLRs). Firms may find the Standard helpful for their client onboarding processes. Firms should also note that the use of the Standard alone would not be a way of following the JMLSG Guidance or of meeting their obligations under the MLRs.”
Background:
The UK regulatory requirements and guidance for KYC adopts a principles-based approach, and therefore rarely specify the precise data points to be populated or parameters for evidence which firms may accept to conduct satisfactory due diligence. As a result, firms throughout the industry have adopted approaches which, although often minor in difference, nevertheless contribute to the process to onboard new clients and review existing clients being slow, costly and inefficient.
In April 2022, FMSB was approached by the Bank of England and FCA to continue the work begun by the Post-Trade Task Force they established. In Charting the Future of Post Trade the Task Force proposed recommendations to remedy these procedural inefficiencies. As a first stage, “[e]stablish standardised document requirements and data definitions and agreed mapping of data to KYC regulatory requirements for all client types… Standards need to be issued on the precise form of documents that would be acceptable”. This standardisation would also pave the way for future digitalisation and automation.
The scope of application for the Standard is any circumstances in which the UK Money Laundering Regulations have been triggered, regardless of the jurisdiction of the client. Although intended to apply to all client industries, specific focus has been placed on financial institutions including asset managers and funds.
The Standard does not impact onboarding firms’ risk assessment of a client, its connected parties, or any of its attributes. Neither is it intended to modify an onboarding firm’s tolerance for whom they ultimately wish or do not wish to take on as a client. The Documentation Requirements are intended only to apply for baseline Customer Due Diligence only, and do not consider additional requirements, including but not limited to the application of Enhanced Customer Due Diligence.
The Standard recognises that firms may be subject to regulations not in scope, notably where the onboarding firm is bound by KYC rules from the country where the parent is incorporated, where the onboarding firm deems additional due diligence to be necessary under the UK’s Risk Based Approach, or where the client operates in a regulated industry where the UK requirements require additional evidence. Onboarding firms are not limited to the Documentation Requirements in the proposed Standard where any of these circumstances apply.
Interaction with Existing Regulation
FMSB has consulted with relevant regulatory stakeholders and industry associations in developing this Standard and taken on board feedback from its Transparency Draft period.
This Standard is intended to provide practical guidance for firms onboarding new clients or reviewing existing clients in a manner that is compatible with, and works within the framework of, any applicable laws, regulations, and guidance for KYC and AML, including the Joint Money Laundering Steering Group Guidance and the UK Money Laundering Regulations and associated regimes (together, the “UK Requirements”).
Nothing in the Standard is intended to prevent Member Firms from continuing to take a risk-based approach in complying with the UK Requirements.
The Working Group will continue to monitor developments in the UK MLRs and other applicable regulation and guidance and update the Standard as required.
About FMSB:
- Financial Markets Standards Board (FMSB) is an industry-led, member-funded global standards body for the wholesale financial markets.
- Created out of the Fair and Effective Markets Review (FEMR) in 2015, FMSB brings together its Members from banks, investment institutions, infrastructure and information providers, corporates, pension funds and interdealer brokers, to develop Standards, Statements of Good Practice and Spotlight Reviews that raise standards of behaviour, competence and awareness – to promote the fairness and effectiveness of global wholesale financial markets.
- As well as standard setting, subject matter experts from member firms debate issues in working groups and are able to benchmark their approaches against industry peers, thus helping to lift standards of conduct.
- FMSB’s full membership list is here
For more information / media inquiries:
Laura Conaghan
+44 (0)7929 72669
Laura.conaghan@fmsb.com