What initial CDD must establish
Initial CDD is the work needed to establish the required customer information on reasonable grounds before a designated service starts.
Section 28 covers the customer and any person on whose behalf the customer receives the service. It also covers a representative and their authority to act.
For a customer that is not an individual, the checks include beneficial owners. The checks also cover politically exposed person (PEP) and targeted financial sanctions status.
The business must establish the nature and purpose of the business relationship or occasional transaction. Exceptions and modified requirements can apply.
Source: Federal Register of Legislation: Section 28(1) to (6).
- Customer and authority
Establish who the customer is and who can act for them.
- Relevant people and purpose
Do the beneficial ownership checks where relevant. Establish the nature and purpose of the service.
- Status and risk
Assess PEP and targeted financial sanctions status and customer risk.
- Evidence and decision
Collect and verify the relevant information, then record the conclusion.
Answer the initial CDD questions
Suggested reading order. Checks can occur at the same time. The general timing rule is before service, subject to applicable exceptions and modified requirements.
Follow the process from top to bottom.
Select evidence for the customer risk
Identify customer risk from reasonably available information. Collect know your customer (KYC) information appropriate to that risk. Verify the information as required with reliable and independent data.
For an individual customer, take reasonable steps to establish that the person is who they claim to be. The Rules also specify information for different customer types.
Apply enhanced CDD when a statutory trigger applies. Source of funds and source of wealth checks can apply under specific enhanced CDD and PEP rules.
Sources: Federal Register of Legislation: Section 28(1) to (6); Federal Register of Legislation: Sections 6-21 and 6-23; Federal Register of Legislation: Section 32.
Identify when the service starts
Identify the designated service and when the business will start to provide it. An invoice date does not, by itself, establish the service start.
Do not start the service before the required matters are established, unless an applicable provision permits this. Identify that provision and examine its conditions.
The transitional arrangements for some existing reporting entities are separate from delayed CDD exceptions. Identify which framework applies to the customer class. A business first regulated by the tranche 2 reforms cannot use that transition and applies the new framework from its first designated service.
Sources: AUSTRAC: When you must complete initial CDD; What you must establish during initial CDD; Reasonable grounds; How to establish matters on reasonable grounds; AUSTRAC: Transitional period for initial customer due diligence.
Invented example: an identity check with questions still open
In this fictional example, an unnamed company asks a practice to manage company assets. Its office manager supplies a company extract and identity evidence.
The practice examines the identity evidence. It must also establish whether the manager has authority to give the instruction.
The extract names a holding company as shareholder. The practice identifies the applicable beneficial ownership requirements and obtains the necessary evidence.
The file records three results: identity checked, authority unresolved, and ownership checks in progress. An urgent request does not answer the open questions.
The practice requests evidence of authority and ownership. It applies the service timing rule and any relevant exception before it starts the service.
Sources: Federal Register of Legislation: Section 28(1) to (6); AUSTRAC: When you must complete initial CDD; What you must establish during initial CDD; Reasonable grounds; How to establish matters on reasonable grounds.
- Customer statement
Records what the customer says.
- Verification evidence
Compare information with reliable and independent sources as required.
- CDD conclusion
Establish the required matters on reasonable grounds. A completed form alone does not do this.
Separate information from a supported conclusion
Read this visual with the source conditions and explanation in this section.
Separate evidence questions. An answer to one does not settle the others.
- Identity checked
The fictional office manager’s identity result answers an identity question.
- Authority unresolved
The file still needs a supported conclusion about authority to act.
- Ownership in review
Identify the applicable ownership requirements and any modified measures.
- Service decision
Apply the timing rule and any specific exception before proceeding.
A passed ID check leaves other CDD questions
Invented example. These are separate questions, not a universal list of required documents.
Separate evidence questions. An answer to one does not settle the others.
Record the evidence and decision
Record how the required matters were established on reasonable grounds. Keep the information and records used for the decision.
A completion note can identify the customer, service, evidence, risk decision and any applicable exception. This is an example of a record, not a prescribed form.
Initial CDD is a starting point. Ongoing CDD includes monitoring and further checks of customer information and risk. Initial CDD does not confirm compliance with every obligation.
Sources: Federal Register of Legislation: Section 111; AUSTRAC: Record keeping; Federal Register of Legislation: Section 28(1) to (6); Federal Register of Legislation: Section 30.
Show what remains incomplete
Keep customer statements separate from verification results. Record the role of each relevant person.
If information conflicts, record the conflict and the next action. Name the person responsible for the action.
Do not mark a matter complete while the evidence remains insufficient. Record the basis for any decision to start the service.