Identification of the customer's characteristics and of the purpose and nature of the business relationship or the occasional transaction: Comments and recommendations by the NBB

1. Obligation to identify the customer's characteristics and the purpose and nature of the business relationship or the occasional transaction

1.1 Scope of the obligation

The obligation to identify the customer's characteristics and the purpose and nature of the business relationship already existed under the former Law of 11 January 1993, where it did not appear, however, as a specific obligation, distinct from the identification and identity verification obligation. Article 34 of the new Anti-Money Laundering Law contains specific provisions that introduce a specific regime for this obligation, while explicitly extending it to occasional transactions.

Thus, the entities subject to the Anti-Money Laundering Law must take adequate measures to assess the characteristics of the customers they have identified in accordance with the Law, and the purpose and nature of the business relationship or of the intended occasional transaction. The Law requires the obliged entities in particular to ensure that they possess the information necessary:

The obligation to collect the necessary information referred to in the first and second points above is the obligation that was formerly provided for, for financial institutions in particular, in Article 12 of the Anti-Money Laundering Regulation of the CBFA of 23 February 2010.

For further information on the scope of the obligation to identify the customer's characteristics and the purpose and nature of the business relationship or the intended occasional transaction, please refer to the explanatory memorandum of Article 34, § 1, of the Anti-Money Laundering Law (see the page “Main reference documents”).

1.2 Application of the risk-based approach

Like the other due diligence obligations, the obligation to identify the characteristics of the customer and the purpose and nature of the business relationship or the intended occasional transaction should be submitted to a risk-based approach (see Article 34, §1 in fine, of the Anti-Money Laundering Law). In order to fulfil this obligation, the financial institutions must take measures that are commensurate with the risks identified in the given situation.

The request for information addressed to the customer in this context can depend in particular on the characteristics of the product, service or transaction requested by the customer, the distribution channel used, the country or geographic area concerned or the characteristics of the customer. If, taking into account these factors, the risk identified in the given situation appears low, the requested information can be reduced in comparison with the information required by a level of risk that is identified as standard or, a fortiori, as high.

1.3. Internal procedures

As a reminder, the NBB recommends that the internal procedures to be implemented by financial institutions pursuant to Article 8 of the Anti-Money Laundering Law, in this case the customer acceptance policy, list the relevant information that should be obtained, depending on the risk classification, to identify the characteristics of the customer and the purpose and nature of the business relationship or the intended occasional transaction (see the page “Policies, procedures, processes and internal control measures”).

As for the method of collecting this information, the explanatory memorandum of Article 34, § 1, of the Anti-Money Laundering Law states in particular that “the purpose and nature of a business relationship can be determined on the basis of prior or pre-contractual information about the proposed product or service that is actually communicated to the customer, provided that the purpose and nature of the business relationship to be established can be deduced in a certain, precise and unambiguous manner. On the other hand, where the product or service offered makes it possible to carry out transactions likely to have various characteristics (for example, in the case of the opening of a current account), the identification of the purpose and nature of the business relationship will require more precise and personalised information from the customer on his intentions regarding the use of the business relationship.”

2. Specific derogation: low-risk issuance of electronic money

2.1. Possibility of derogation

Article 34, § 2, of the Anti-Money Laundering Law provides for the possibility of a derogation for the financial institutions issuing electronic money. These institutions may, where the overall assessment of the ML/FT risks specifically associated to their issuing activity shows that these risks are low, decide not to collect information on the characteristics of the customer or on the purpose and nature of the business relationship or intended occasional transaction with respect to customers who provide them with funds for the issuance of electronic money.

2.2. Conditions for application of the derogation

However, this possibility of derogation is subject to several conditions, which are the same as those to which the possibility of derogation from the identification and identity verification obligations is subject, as set out in Article 25 of the Anti-Money Laundering Law (see the page “Persons to be identified”).

In addition to the fact that the overall risk assessment carried out by the electronic money issuer must demonstrate that the level of ML/FT risks to which it is exposed as a result of this activity is low, the following cumulative conditions must be met:

1° the payment instrument cannot be reloaded or, if it is reloadable, it can only be used in Belgium and only to make payments up to a maximum monthly limit of EUR 150;

2° the maximum amount stored electronically does not exceed EUR 150;

3° the payment instrument is used exclusively to purchase goods or services; it follows in particular that it cannot be accepted to perform a money remittance operation;

4° the payment instrument cannot be funded with anonymous electronic money;

5° the electronic money issuer concerned carries out sufficient monitoring of the transactions or business relationship to enable the detection of unusual or suspicious transactions.

2.3. Non-application of the derogation

Even if all the conditions listed above are met, the derogation is not applicable when a customer:

1° is redeemed in cash, at the monetary value of the electronic money, 

2° withdraws this value in cash, or

3° carries out remote payment transactions within the meaning of Article 2, 23° of the Law of 11 March 2018

if the amount redeemed, withdrawn or paid, as the case may be, exceeds EUR 50.

In these three cases, where the legislator considered that the risk could not be regarded as low, the electronic money issuer is required to take appropriate measures to identify the characteristics of the customer concerned and the purpose and nature of the business relationship or occasional transaction, at the time of the refund or withdrawal of the electronic money or at the time when the customer carries out remote payment transactions using electronic money (that was previously issued without any such measures). 

With regard to anonymous prepaid cards issued in third countries, the institutions referred to in Article 5, § 1, 4°, 6° and 7° of the Anti-Money Laundering Law, which offer payment services consisting in acquiring payments transactions, as referred to in point 5 of Annex I.A. of the Law of 11 March 2018, may accept payments made with such anonymous prepaid cards only if such cards comply with conditions equivalent to those laid down in the first and second paragraphs of the same Article of the Law. Where appropriate, these institutions must therefore have effective systems in place which enable them to check - at the time the payment transaction is accepted - that these legal conditions are met and must immediately refuse the payment transaction if this should not be the case.

In the same vein, the NBB highlights the fact that, where circumstances have given rise to suspicions of ML/FT, either at the time when the business relationship with the customer is established or subsequently, that led the electronic money issuer to report a suspicion to CTIF-CFI and, in accordance with Article 22 of the Anti-Money Laundering Regulation of the NBB, to carry out an individual re-assessment of ML/FT risks revealing that the level of risk associated with the given situation can no longer be regarded as low (which should logically be the case - see the page “Reporting of suspicions”), the said issuer can no longer invoke the derogation provided for in Article 34, § 2, of the Law. The issuer should immediately identify the customer's characteristics and the purpose and nature of the business relationship or the occasional transaction, in accordance with Article 34, § 1, of the Law.

2.4. Documentation

Finally, since the above-mentioned possibility of derogation is not absolute but subject to certain limitations, the NBB recommends that the financial institutions applying the derogation be able not only to submit the overall risk assessment that establishes the low level of risk, which must be documented, updated and made available to the NBB pursuant to Article 17 of the Law (see the page “Reporting by financial institutions”, but also to demonstrate to the NBB that, in all cases where they have applied Article 34, § 2 of the Law, each of the legal conditions to benefit from this derogation is met.

3. Time of identification

3.1. Principle

In accordance with Article 34, § 1, fourth paragraph of the Anti-Money Laundering Law, the information concerning the customer's characteristics and the purpose and nature of the business relationship or of the occasional transaction should be obtained at the latest:

  • at the time when the business relationship is established if the customer wishes to establish a business relationship with the financial institution, or
  • at the time when the transaction is carried out, in case of an occasional transaction.

3.2. Inability to identify the customer's characteristics and/or the purpose and nature of the business relationship or the occasional transaction

3.2.1. Prohibition to enter into a business relationship or perform the intended transaction

According to Article 34, § 3, first paragraph, of the Anti-Money Laundering Law, when financial institutions are unable to obtain the information that is required by the level of ML/FT risk that they have previously identified, on the customer's characteristics and the purpose and nature of the business relationship or the intended occasional transaction at the latest at the time of establishment of the business relationship or the time of conclusion of the transaction, they may:

  • neither establish the intended business relationship,
  • neither carry out the transaction, especially a transaction through a bank account.

The scope of this prohibition, which also applies in case of non-identification of the customer (or of his agent or beneficial owner) or absence of the verification of his identity (see the page “Non-compliance with the identification and identity verification obligation”), cannot be dissociated from the scope of the due diligence obligation itself. Thus, as most identification and identity verification obligations are performance obligations, the associated legal prohibition generally takes effect as soon as it appears that the identification or the verification cannot be carried out. Conversely, the obligation to identify the customer's characteristics and the purpose and nature of the business relationship or the occasional transaction is an obligation of means. In that case, the prohibition to establish or continue the business relationship or to perform the transaction desired by the customer takes effect when the financial institution is unable, for any reason whatsoever, to take the measures commensurate with the identified risk that are imposed by the Law  before the business relationship is established or the occasional transaction carried out.

The refusal to establish a business relationship with a potential customer or to carry out an occasional transaction he wishes to perform, should be properly justified. This refusal should not be a means for the financial institution to discriminate against certain categories of customers (see the page “Due diligence requirements and compliance with other legislations”).

3.2.2. Reporting to the AMLCO

Beyond the prohibition to establish a business relationship with a customer or to carry out a transaction on behalf of him in these circumstances, any inability, for the financial institution, to fulfil the obligation to identify the customer's characteristics and the purpose and nature of the business relationship or the intended occasional transaction must lead the financial institution, under the responsibility of the AMLCO, to inquire into the causes of this inability and to decide whether a suspicion should be reported to CTIF-CFI (Article 34, § 3, second paragraph, of the Anti-Money Laundering Law).

This implies that this inability should first be established and reported to the AMLCO, the details of which should be specified in the internal procedures adopted by the financial institution pursuant to Article 8 of the Anti-Money Laundering Law (for more information on this subject, see the page “Policies, procedures, processes and internal control measures” and point 1.4 of the page “Due diligence on business relationships and occasional transactions and detection of atypical facts and transactions”). 

4. Updating of data or information

The financial institutions should update the information they hold pursuant to the obligation to identify the customer's characteristics and the purpose and nature of the business relationship.

With regard to this obligation to update, which should be subject to a risk-based approach, that is part of the due diligence that financial institutions must exercise with regard to business relationships and occasional transactions pursuant to Article 35, § 1, of the Anti-Money Laundering Law, for more information see the page “Due diligence on business relationships and occasional transactions and detection of atypical facts and transactions”. 

5. Internal control measures

Financial institutions are expected to periodically verify that the internal procedures adopted to enable them to comply with the obligation to identify the characteristics of their customers and the purpose and nature of business relationships and occasional transactions are continuously and properly complied with and that the processes for implementing the obligations related to this due diligence requirement are adequate. 

The NBB recommends the internal audit function to pay particular attention to: 

  • the appropriate nature of the information collected while fulfilling the obligation to identify the customer's characteristics and the purpose and nature of the business relationship or the occasional transaction;
  • the appropriate nature of the updating of data and information held in the context of the same obligation;
  • with regard to the electronic money institutions that make use of the derogation provided for in Article 34, § 2, of the Anti-Money Laundering Law, whether the risk associated with their activity of issuing electronic money effectively is low and whether the conditions listed in Article 25 of the same law for applying the above-mentioned derogation are effectively met.

Disclaimer: This English text is an unofficial translation and may not be used as a basis for solving any dispute