The Financial Markets Standards Board (FMSB) plays a pivotal role in bolstering the fairness and efficacy of wholesale financial markets.
According to Moody’s, by clarifying trading practices and endorsing high standards, the FMSB aims to dispel ambiguities and secure consistent market practices. This proactive approach involves regularly scanning for emerging risks and trends, engaging a wide spectrum of industry participants and public authorities, and contributing to the development of international market standards, thereby safeguarding the integrity and efficiency of global financial markets.
Recently, the FMSB has issued comprehensive guidelines for client onboarding, aiming to streamline the documentation and processes involved. This initiative is designed to facilitate the compliance of financial institutions (FIs) with regulatory standards by providing a clear framework for gathering and verifying necessary customer information.
Key recommendations from the FMSB focus on several core areas:
- Identity Verification: Entities are urged to collect documents that verify crucial details such as the legal name, any former names, legal form, registered address, and the country of incorporation of their clients.
- Business Verification: FIs should acquire information about the client’s industry type, primary business activities, main location, and regulatory status.
- Structure Verification: It’s essential for FIs to identify and confirm details regarding significant influencers within the client’s business, like direct and indirect shareholders, Ultimate Beneficial Owners (UBOs), and key controllers.
- Connected Parties: Information regarding connected parties such as authorized signatories and account opening agents should be collected and verified.
- Supplementary Operational Data: Additional operational data, including a Legal Entity Identifier (LEI), settlement instructions, and other contact information, should also be compiled.
The FMSB advocates for a structured approach to mapping documents to the required data points for onboarding. This includes determining the credibility and relevance of each document type, ranging from those publicly available to those that should be sourced directly from the client. The recommended hierarchy of evidence prioritizes documents based on their source and reliability.
When direct client interaction is necessary, particularly in cases requiring enhanced due diligence, the FMSB has developed a communication template to effectively convey the need for additional documentation. This template is particularly useful in borderline or high-risk cases where public digital sources do not provide sufficient information.
For financial institutions, the FMSB’s guidelines offer substantial takeaways:
- Rigorous verification of identity and business information is crucial, utilizing both public and non-public sources.
- Key individuals and entities associated with the client must be identified and verified.
- Adherence to the recommended step-by-step process for sourcing evidence is essential for maintaining integrity in data collection.
- Clear communication with clients regarding the onboarding process and the potential need for further due diligence should be maintained.
- Compliance with regulatory standards must be rigorously upheld to ensure accountability and adherence to industry best practices.
Marisol Lopez Mellado, Snr Director and Industry Practice Lead at Moody’s, highlighted the importance of these guidelines, stating, “Understanding the Financial Markets Standards Board (FMSB) guidelines for client onboarding can be truly helpful to businesses that want to help maintain the integrity and efficiency of financial markets. By following the standards, financial institutions can create more thorough onboarding processes, in line with best practices. The FMSB’s recommendations on data collection, entity verification, and due diligence on connected parties provide a robust foundation to build a compliance framework upon.”
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