Background And Approach Of Basel Committee On Banking Supervision To CDD And KYC: Attack Against Financial Risk

This article elaborates on ‘Important Background And Approach Of Basel Committee On Banking Supervision To CDD And KYC In 2020’.

Background And Approach Of Basel Committee On Banking Supervision To CDD And KYC

Background

The Basel Committee, which is headquartered in Basel, Switzerland, at the Bank for International Settlements (BIS), is a group of bank supervisory authorities from 28 countries. The committee itself, which is made up of a representative of each central bank and a representative of the body with formal responsibility for the prudential supervision of banking business (where different) in each country, meets four times a year. It also has about 30 technical working groups and task forces, which meet regularly. It has no authority to make legally binding pronouncements but formulates broad supervisory standards and guidelines and recommends best practices. 

The committee has a long-standing commitment to promoting the implementation of sound AML/CFT policies and procedures that are critical in protecting the safety and soundness of banks and the integrity of the international financial system. Following an initial statement in 1988, it has published several documents supporting this commitment. In September 2012, the committee reaffirmed its stance by publishing the revised version of the core principles for effective banking supervision. A dedicated principle (BCP 29) deals with the abuse of financial services. 

Important Background And Approach Of Basel Committee On Banking Supervision To Cdd And Kyc In 2020

Request for investigation

The Basel Committee discovered several flaws in a large number of nations’ KYC regulations when evaluating the results of an internal cross-border banking survey. From a supervisory perspective, KYC regulations in several nations were found to have major gaps, and in some cases, the policies were completely lacking. As a result, the Basel Committee requested that the Working Group on Cross-border Banking investigate the KYC processes in place at the time and develop proposed standards that would apply to banks in various countries. In January 2001, the resulting paper was published as a consultative document. 

Following the review of the comments received, the Working Group revised the paper. The Basel Committee distributed it globally with the expectation that the KYC framework presented would become the benchmark for supervisors to establish national practices. For banks to design their programs, these were considered. 

KYC’s association

KYC is most closely associated with the fight against money laundering, which is essentially the province of the Financial Action Task Force (FATF). It is not the committee’s intention to duplicate the efforts of the FATF. Instead, the committee’s interest is from a wider prudential perspective. Sound KYC policies and procedures are critical in protecting the safety and soundness of banks and the integrity of banking systems. 

Support to FATF recommendations

The Basel Committee and the Offshore Group of Banking Supervisors continue to strongly support the adoption and implementation of the Recommendations of FATF, particularly those relating to the banks. The Committee and the Offshore Group of Banking Supervisors will also consider adopting any higher standards introduced by the FATF due to its current review of the 40 Recommendations. 

Distribution of new guidelines

The BASEL committee issued a new set of guidelines that describe how banks should include risks related to money laundering and financing of terrorism within their overall risk management framework. The guidelines are drawn up to be consistent with FATF’s 2012 standards and Recommendations and to supplement their goals and objectives. They supersede two previously issued Basel Committee publications, CDD for Banks (October 2001) and Consolidated KYC Management (October 2004). An updated version of the guidelines was published in 2017.

Support to KYC procedures

The Basel Committee’s approach to the KYC is from a wider perspective, and not just from the AML perspective. It is emphasized that the robust KYC procedures must be a critical part of the banks’ effective management of ML/TF (Money Laundering/Terrorism Financing) risks. KYC safeguards go beyond simple account opening and record-keeping and require banks to design and implement the customer acceptance policy and a customer identification program. This involves more extensive due diligence for higher-risk customers and includes the proactive approach of monitoring accounts for suspicious activities.

Final Thoughts

The Basil Committee has a long-standing commitment to promoting the implementation of CDD and KYC policies and procedures. The Committee believes that AML/CFT procedures are critical in protecting the safety and soundness of banks and the integrity of the international financial system.

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