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The three things banks will check before they open a private banking account for you

Monday, 17 April 2023

Monde Economique by Achille Deodato, CEO of Indigita SA

These days, opening an account with a retail bank can be done in a matter of minutes. But opening a private banking account can still take weeks. That’s because the larger amounts of money and more complex transactions typically handled by private banks mean higher money laundering, civil and commercial risks compared to the retail banking business.

So, what process applies for private banks when opening an account for a new client?

First and foremost, private banks must follow a rigorous "KYC" (Know Your Client) process. For this purpose, the bank will be asking the prospective client a set of questions to fully understand their personal and professional background, their overall asset situation, the purpose of the new account, and how it will be funded and used. To complete this vital step, new clients should be prepared to provide evidence and documentation supporting the statements they make.

As a second step, the bank will perform a "PEP" (Politically Exposed Person) and reputation check to detect potential political exposure or negative news coverage, which may indicate an increased risk of the client being involved in illicit or questionable activities, or relationships. This review is cross-referenced with the documentation and information provided by the client to verify consistency. The bank now has a comprehensive picture of the prospective client, knows about their public and political exposure, and has made sure that the purpose of the account doesn’t conflict with any laws or internal policies. Based on this information, the bank will classify the account as either low, medium, or high risk, which will trigger the appropriate set of automated checks each time the account is being used. The opening of accounts for politically exposed persons (PEP) generally requires the approval of the bank’s top management, as they represent a potential reputational risk.

As a third step, once the account has been opened and funds are deposited, the bank will verify that the origin and source of these funds are consistent with the information gathered in the KYC phase. The origin of funds refers to how the money was generated, such as inheritance, dividends, interests or other types of incomes. The source of funds is where the assets will flow from, such as a bank, corporation, or individual account. If the origin or source of funds is not consistent with the information and documentation provided by the client during the KYC phase, a bank may block and return the funds. If there is reason to suspect money laundering activities, the bank may have an obligation to report the client and the transaction to the relevant authorities.

In conclusion, clients should expect to undergo a thorough process when opening a private banking account and be prepared to provide documentation of any declarations they make about their financial and personal background, as well as the funds they plan to deposit. This thorough process is required by law and will help banks to stay compliant with regulations while, at the same time, provide services that are tailored to the client’s situation.


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