Regulatory Alerts2006-05-10
Added
Application of the Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to the Securities and Futures Industries
The Financial Crimes Enforcement Network clarifies that securities and futures firms may apply a risk-based approach to the five enumerated due diligence factors for correspondent accounts, requiring only those factors relevant to the specific risk profile of the foreign financial institution. Clearing firms are not required to look through omnibus accounts to perform due diligence on underlying accountholders, nor are they obligated to treat introduced private banking accounts as their own unless they impose aggregate minimum account requirements of not less than $1,000,000 or assign a liaison. Firms must determine if a foreign entity is a foreign financial institution through a reasonable inquiry into its business functions rather than complex legal analysis, and must evaluate the anticipated securities or futures trading activity of a correspondent account in addition to fund movements.