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Client Onboarding KYC Best Practices
For eight years a client has paid R1 000 a month into an investment by debit order. He now deposits R750 000 from an overseas account and gives no explanation. The FSP's adviser says: 'We did his KYC when he joined, so nothing more is needed.' Which statement is correct?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) The adviser is wrong, because due diligence is ongoing and this deposit must be examined.Correct
- b) The adviser is right, because an electronic transfer from a bank has already been checked by that bank.
- c) The adviser is right, because identity is verified once and the FIC Act does not require it to be repeated.
- d) The adviser is wrong, because every deposit above R50 000 requires the client's identity to be verified again.
Why this is the answer
Knowing a client is not a once-off event. An accountable institution must conduct ongoing due diligence: monitor transactions, including the source of funds, to see that they are consistent with its knowledge of the client, and keep that information current. A deposit that is out of character must be examined, and may have to be reported if it remains unexplained. Another bank's checks do not replace the FSP's own duty.
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