Know Your Customer
As a development finance institution (DFI), FMO runs the risk of becoming involved in money laundering or financing terrorism, and financing sanctioned entities or customers with a bad reputation. To mitigate such risks, we follow policies and procedures that 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. We only want to deal with customers of good standing. Therefore, we obtain 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 customer relationship throughout its life cycle. We work in countries where it is hard to obtain and verify documents. Nevertheless, FMO has a robust FEC framework in place, which complies with national and international FEC and KYC standards.
Since 2021, we have significantly increased the number of FTEs in both the first and second lines. In the first line, the Know Your Customer (KYC) department supports and works closely with the investment teams that are responsible for customer contact and the comprehensive risk assessment of the customer. As part of the implemented deal team approach, in-depth customer due diligence is performed. The Compliance department forms the second line and has transferred some of its tasks to the first line, to better reflect their responsibility towards KYC.
We evaluate our policies and procedures on an ongoing basis, enabling the investment teams to conduct in-depth due diligence in line with applicable laws and regulations. Additionally, new employees receive KYC training, as well as other integrity awareness trainings during their first weeks at FMO. In 2022, we continued to provide mandatory anti-bribery and corruption training sessions, as well as financial economic crime and unusual transaction reporting training for all investment personnel and relevant support functions.
An independent external validator assessed our KYC work in the last quarter of 2021 and concluded that our FEC framework is compliant and sufficiently reflects our risk profile. It also concluded that the customer files that were remediated in 2021 were in accordance with the FEC framework and that FEC processes are effective. In early 2022, DNB checked a sample of our remediated KYC files. Based on their recommendations, we conducted a specific integrity risk assessment on our private equity fund investments and made an action plan to deal with the risks we identified.