Reliance on customer identification procedures by a third party

In certain circumstances you can rely on customer identification procedures undertaken by reliable third parties: other reporting entities or AML/CTF-regulated foreign equivalents.

In relying on the customer identification carried out by a reliable third party, your own applicable customer identification procedures (ACIP) are considered complete.

This is known as “reliance”.

Updated reliance provisions at a glance 

There are two options for reliance – relying on a reliable third party to carry out customer identification procedures as part of an ongoing arrangement or on a case-by-case basis.

Ongoing arrangements 

Section 37A of the AML/CTF Act permits you to rely on the customer identification procedures of a reliable third party on an ongoing basis where:

  • you have entered into a written agreement or arrangement (known as a customer due diligence (CDD) arrangement), and
  • you have reasonable grounds to believe that the reliable third party has appropriate AML/CTF systems and controls to meet each of the requirements prescribed under Chapter 7 of the AML/CTF Rules at the time you entered into the CDD arrangement. This is an objective test.

Case-by-case arrangements 

Section 38 of the AML/CTF Act permits you to rely on an identification procedure carried out by a reliable third party on a case-by-case basis, without a CDD arrangement with a reliable third party.

You may do this where you have reasonable grounds to believe that it is appropriate to rely on the third party’s identification procedure, taking into account the ML/TF risks you face and the other matters set out in Chapter 7 of the AML/CTF Rules.

Reasons you could choose to use reliance 

There are situations where a customer may have dealings with more than one reporting entity or foreign equivalent, for example:

  • having contact with two or more reporting entities as a result of the one transaction
  • holding accounts with multiple financial institutions
  • being introduced to a reporting entity by another reporting entity or foreign equivalent.

In these scenarios, the requirement to complete ACIP multiple times can be inconvenient for customers, particularly when several entities are requesting the same information.

Reliance allows you to consider the nature of your relationship with the customer and the money laundering and terrorism financing (ML/TF) risks involved, and then determine the extent to which it is appropriate to rely on identification procedures undertaken by a reliable third party.

Reliance in appropriate situations can also help to reduce the costs of carrying out the ACIP.

Benefits of entering into an ongoing CDD arrangement 

Entering into an ongoing CDD arrangement gives you a ‘safe harbour’ from liability under section 32 of the AML/CTF Act for isolated breaches of the customer identification procedures.

You do, however, remain responsible for remediating any isolated breaches when they occur and this must be undertaken as soon as practicable after the breach is identified.

You also remain responsible for systemic breaches that occur where a reasonable person would not consider that the CDD arrangement complies with the AML/CTF Act or Rules. Reliance under a CDD arrangement with a third party that does not meet the requirements will be considered case-by-case reliance and you will remain responsible for individual breaches of CDD and record-keeping obligations. For example, where you become aware, or should be aware, that the third party does not have the appropriate AML/CTF systems and controls, or is failing to carry out the customer identification procedures to the agreed standard.

If you rely on the identification procedures of a reliable third party without entering into a CDD arrangement, you must comply with the requirements for case-by-case reliance, or you may be liable for each breach of customer identification procedures where a designated service is provided to a customer.

Any ‘arrangements’ in place prior to section 37A coming into effect will need to be reviewed to ensure they meet the requirements of the AML/CTF Act and Rules if they are to provide safe harbour protection.

Find out more about the requirements for safe harbour

More information about reliance 

Available for download 

The content on this website is general and is not legal advice. Before you make a decision or take a particular action based on the content on this website, you should check its accuracy, completeness, currency and relevance for your purposes. You may wish to seek independent professional advice.

Last updated: 17 Jan 2024
Page ID: 669

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