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Understanding the Know Your Customer rules: What is a special person of interest (SIP)?

We live in a world where customer data is becoming more and more valuable, and companies are constantly trying to collect more of it. Therefore, it is important for businesses to know who their customers are, and this is where Know Your Customer (KYC) rules come into play. KYC is a set of regulations that businesses must comply with to establish and verify the identity of their customers.

As part of the Customer Due Diligence (CDD) pursuant to Section 10 German MLA, obliged entities pursuant to Section 2 German MLA must understand the nature and purpose of customer relationships in order to be able to determine a customer risk profile.

The CDD approach must also include the screening and continuous monitoring of SIPs. This is done with a list of profiles of individuals or entities of particular interest as they may pose an increased risk due to current or historical involvement in crime.

There are currently no official lists of SIPs. The creation and monitoring of the SIP profiles is at the discretion of the obligated party.

In this blog we go into what a “Special Person of Interest” (SIP) is, how to identify one, what responsibilities companies have when dealing with SIPs and what tips there are for implementing the KYC rules.

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Know Your Customer

Introducing the “Know Your Customer” rules

The Know Your Customer (KYC) rules are a set of regulations that oblige companies to collect, verify and store information about their customers. The aim of these regulations is to protect companies from fraudulent activities such as money laundering, terrorist financing and other criminal activities. In addition to verifying customers‘ identities, KYC regulations also oblige companies to monitor their customers‘ transactions and take appropriate steps if suspicious activity is detected.

In connection with the KYC regulations, the concept of the „Special Person of Interest“ (SIP) is to be understood. A SIP is a customer who is at higher risk of being involved in fraudulent activity, and as such, businesses must take extra precautions when dealing with these customers.

What is a Special Person of Interest (SIP)?

A Special Interest Person (SIP) profile is an individual allegedly involved in criminal activity that falls under one of the following six categories:

  • corruption
  • financial crime
  • Human trafficking and smuggling of migrants
  • Organised crime
  • Terror
  • tax crime

It is best to create SIP profiles only when the source used reports a criminal investigation (usually from arrest) and the alleged crime, with the exception of terrorism and human trafficking cases, exceeds a monetary threshold. This is to be defined by the obligated party.

Businesses need to take extra precautions when dealing with these individuals as they are more likely to engage in fraudulent activities.

To identify a SIP, organizations must use a combination of data sources, including public records, news articles, and other forms of information. This information can be used to determine whether the customer is at higher risk of fraudulent activity.

How to identify a SIP

Identifying a SIP isn’t always easy, but there are a few steps companies can take to better identify them. The first step is to use existing customer data and supplemental research databases to determine whether the customer is a PEP, is wealthy, or has been convicted of a financial crime. This information can be used to determine whether the customer is at higher risk of fraudulent activity.

In addition to customer data, companies should also use external sources of information , such as news articles and public records, to determine whether the customer poses a higher risk for fraudulent activity. For example, if a customer is mentioned in a newspaper article as being involved in a financial crime, then they should be considered a SIP.

Once a customer has been identified as a SIP, companies must take additional steps to ensure that the customer is not involved in fraudulent activity. This includes verifying the customer’s identity, performing enhanced due diligence and monitoring their transactions for suspicious activity.

Examples of SIPs

A SIP can be any natural or legal person who is at increased risk of fraudulent activity. Some examples of SIPs are:

  • Politically Exposed Persons (PEP): These are persons who are or have been in a position of power, such as B. Government officials, political leaders and their family members.
  • High Net Worth Individuals (HNWI): These are people with net worth greater than a certain amount, usually around $1 million.
  • Convicted Criminals: These are people who have been convicted of a financial crime.
  • Businesses with Connections to Sanctioned Entities: These are businesses that have a relationship with a sanctioned entity, e.g. B. to a government agency or a terrorist organization.

Benefits of knowing the rules for your business

By complying with KYC regulations and taking extra precautions when handling SIPs, businesses can protect themselves from fraudulent activity. This includes reducing the risk of money laundering, terrorist financing and other forms of criminal activity.

In addition, companies can also benefit from knowing their customers better. By collecting and reviewing customer data, companies can better understand their customers‘ needs and offer them better products and services.

Tips for implementing know-your-customer rules

When implementing the KYC rules, there are a few tips that companies should keep in mind:

  • Invest in systems and processes: Investing in systems and processes to properly identify and verify customers is essential to meeting KYC requirements.
  • Train your staff: Train your staff on how to properly monitor transactions and ensure KYC compliance.
  • Follow the rules: It is important to follow all applicable KYC rules and regulations to ensure businesses are protected from fraudulent activity.
  • Stay informed: It is also important to stay informed of any changes or updates to KYC regulations.

Courses to learn the Know Your Customer rules

If you are interested in learning more about KYC rules and how to implement them, there are a number of courses and resources available. These courses can help companies better understand and follow the rules. S+P courses offer the course „KYC: Due diligence in relation to customers – become a professional in matters of KYC checks“.

This KYC (Know Your Customer) seminar from S+P is suitable for all companies that want to improve their customer due diligence obligations. In the seminar, the legal basics are conveyed and it is shown which steps must be taken in order to fulfill the due diligence obligations.

With our help, you will become a professional when it comes to Know Your Customer.

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KYC as a Service

With KYC as a Service, new customers are onboarded and KYCs for existing customers are updated by S+P Compliance Services. The 4-step check is an innovative digital solution from S+P Compliance Services. New customers are onboarded efficiently and securely. You receive a complete KYC check on your customer and fulfill your AMLA due diligence obligations.

The Adverse Media Check checks the following facts:

  • Anticompetitive Behavior
  • financial difficulty
  • Information Rights/Copyright/Patent Issues
  • Managementprobleme
  • environmental issues
  • Product/Service Issues
  • Production/supply chain issues

With KYC as a Service, you have a perfect S+P compliance service at your disposal, with which you can also fully fulfill your SIP obligations.