Basel Committee on Banking Supervision

Established in 1974 by central bank governors of the G10. The Secretariat is provided by the Bank for International Settlements (BIS) in Switzerland, which promotes financial stability among central banks and international organizations. Central bankers are not directly responsible for AML, but they can enforce high ethical standards.

The Basel Committee’s members are Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Luxembourg, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.

In 1998, Basel Committee set out a statement of principles entitled “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering” covering:
  • Customer identification

  • Compliance with laws

  • Conformity with high ethical standards and local laws and regulations

  • Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality

  • Staff training

  • Record keeping and audits

  • They stressed confidentiality, as this was a time before legislation that required the identification of customers.

In 1997 the Basel committee issued the “Core Principles for Effective Banking Supervision” that required strong KYC, and high ethical standards to prevent the use of the financial system by criminals. It also urged adoption of the FATF 40 recommendations.

In October 2001 paper “Customer Due Diligence for Banks” covered:

  • Introduction

  • Importance of KYC standards for supervisors and banks

  • Essential elements of KYC standards

  • The role of supervisors

  • Implementation of KYC standards in a cross-border context

The paper indicates that banks should monitor account activity and ensure that it is in line with expected usage. Numbered accounts are not prohibited, but the real customer’s identification can’t be hidden from compliance staff or regulators.

The paper introduces 7 specific customer situations:

  • Trust, nominee and fiduciary accounts

  • Corporate vehicles, esp. with nominee shareholders or shares in bearer form

  • Introduced businesses

  • Client accounts opened by professional intermediaries (i.e. pooled accounts for mutual funds, pension funds, and money funds)

  • PEPs

  • Non-face to face customers

  • Correspondent banking

The following recommendations are made:

  • Private banking should not be exempt from KYC

  • Customer acceptance should include the country, business and other risk factors and should indicate who is, and is not, an acceptable customer

  • Understand the beneficial owner

  • Periodic training on KYC & AML

  • Internal audit and compliance should regularly monitor staff performance and adherence to KYC policies

  • High risk accounts should be monitored for suspicious activities away from normal patterns of usage

  • Regulators should ensure staff follow KYC procedures

The 4 key elements of KYC according to the paper are:

  • Customer identification

  • Risk management

  • Customer acceptance

  • Monitoring

Next Topic: EU Directives on Money Laundering

Previous Topic: Non-Cooperative Counties

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