Know Your Customer
FMO plays an important role as gatekeeper to help prevent financial economic crime (FEC) and preserve the integrity and reputation of the financial system. We implement high standards and best practices which continue to develop over time. This means FMO only wants to deal with customers of good standing and reputation. In order to know with whom we are establishing a business relationship, FMO needs to acquire and monitor information and documents concerning the identity of a customer, gain insight into the business and its structure, and assess customer integrity risk holistically. Referred to as Know Your Customer (KYC), this is an integral part of the investment process and the relationship throughout its entire lifetime.
FMO is currently aligning its KYC files with best practices, and national and international standards related to FEC and KYC processes. Our work is mainly located in countries where obtaining documents and verifying these documents can be a time consuming and complex process. Not being able to meet in person due to COVID-19 makes it more difficult to execute a proper due diligence process. Following a DNB onsite inspection in 2018, DNB identified several shortcomings in the way FMO conducts Customer Due Diligence/Know Your Customer. As FMO sees this as an area where the risk of non-compliance with Wwft and Sanctions Law is present, a FEC Enhancement program was set up to demonstrate full compliance. It became clear in September 2020 that the progress of the FEC Enhancement program was not fast enough. As a result, FMO and DNB agreed on a deadline to ensure full compliance with the Wwft and Sanctions Law by the end of 2021. This includes the remediation of approximately 1,050 customer files.
In the past year, FMO has made improvements in the governance and infrastructure of its FEC capabilities. This includes a significant increase in the number of FTEs in both the first and second lines of defense. In the first line of defense, a new KYC department was formed that supports and works closely with the investment teams to prepare in-depth customer due diligence. The Compliance Department maintains the second line of defense and has transferred some of its tasks to the investments teams, to better reflect the investment team’s responsibility towards KYC. Other improvements include the enhancement of FMO’s FEC Framework, where new policies and procedures and guidance notes on a variety of relevant FEC themes were developed, enabling the investment teams to conduct proper due diligence. A mandatory training program was deployed for all (permanent and temporary) investment personnel and relevant support functions, which will continue in 2021. FMO renewed its KYC-source system that allows FMO to perform KYC in a more efficient and sustainable manner and demonstrate compliance with its FEC Framework.
Regarding the remediation of KYC files, temporary resources have been engaged to ensure timely remediation and allowing existing investment teams to continue to support existing customers. The remediation is managed tightly by a project team comprising of representatives of the investment teams and compliance, under the responsibility of a dedicated director and the Management Board.