Know Your Customer
FMO runs the risk of becoming involved in money laundering or financing terrorism. FMO is also at risk of financing sanctioned entities or customers with a bad reputation in general. To mitigate such risks, we follow policies and procedures designed to deter criminal activity and ensure we do business with reputable customers.
FMO plays an important role as gatekeeper to help prevent financial economic crime (FEC) and preserve the integrity and reputation of the financial system. FMO only wants to deal with customers of good standing. FMO obtains and monitors information and documents concerning the identity of a customer, gains insight into the business and its structure, and assesses customer integrity risk holistically. Referred to as Know Your Customer (KYC), this is an integral part of the investment process and the customer relationship throughout its entire life cycle.
FMO aligns its KYC files with best practices, and national and international standards related to FEC and KYC processes. FMO’s work is mainly located in countries where obtaining and verifying documents can be difficult, and not being able to meet in person due to COVID-19 makes it even more challenging.
In 2018, following an onsite inspection, DNB identified several shortcomings in the way FMO conducts KYC. FMO recognized this as an area where the risk of non-compliance with the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) and Sanctions Law is present and set up a FEC Enhancement program. When in September 2020 it became clear our progress was insufficient, FMO and DNB agreed on a timeframe to ensure compliance. This was achieved by the end of 2021, including the remediation of approximately 951 customer files.
In the past year, FMO has improved its FEC governance and infrastructure. We significantly increased the number of FTEs in both the first and second lines of defense. In the first line, 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 comprises the second line and has transferred some of its tasks to the first line, to better reflect their responsibility towards KYC. We also updated FMO’s FEC Framework, which includes new policies and procedures, enabling the investment teams to conduct in-depth DD in line with applicable laws and regulations. A mandatory anti-bribery and corruption training was rolled out for all (permanent and temporary) investment personnel and relevant support functions, which will continue in 2022. New employees received KYC training during their first weeks at FMO.
The remediation of KYC files was finished as intended by the end of 2021. The results were audited by an independent external validator in the last quarter. Their conclusion was that FMO’s FEC framework is compliant and sufficiently reflects FMO’s risk profile. The audit also confirmed that FMO’s customer files were remediated in accordance with the FEC framework and that FEC processes are operating effectively. FMO established an action plan to follow up on the recommendations identified by the independent external validation such as the further automation of transaction monitoring processes. The Management Board reported compliance with relevant integrity related laws and regulations to the DNB and concluded the remediation program. Everything we have learnt around this process will be used in 2022 and beyond.