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Cyprus: Client identity checks

Elias Neocleous

In June 2016 the Cyprus Securities and Exchange Commission (CySEC) issued circular 143, which clarifies the effect of recent amendments to article 62 of the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007. Article 62 sets out the requirements regarding verifying the identity of clients and beneficial owners.

Entities that fall within the scope of the law must carry out customer identification procedures before establishing a business relationship. Article 62 provides that identity checks should also normally have taken place before a business relationship is established. However, a new paragraph 2A has been inserted into article 62 to provide a derogation for cases that fall under CySEC's supervision. This derogation allows the verification of the identity of the customer and the beneficial owner to be completed during the establishment of a business relationship if necessary to avoid interrupting the normal conduct of business and where there is little risk of money laundering or terrorist financing occurring. It is, however, subject to the proviso that these procedures should be completed as soon as practicable after the initial contact.

It is therefore no longer necessary for entities supervised by CySEC to wait until all of the verification is complete before doing business if these conditions apply. However, until the verification has been completed the cumulative amount of deposited funds of a customer or beneficial owner should not exceed €2,000, (approximately $2,200). In addition, deposits should only be accepted from a bank account or related credit card in the customer's own name. In any event, the verification of identity must be completed within 15 days from the customer accepting the regulated entity's terms and conditions or making the first deposit, whichever comes first.

CySEC has now issued an updated version of the circular (circular 157 of August 31 2016). This makes it clear that the derogation does not apply to administrative service providers (ASPs), which are obliged to comply with article 62 at all times. In exceptional cases where an ASP intends to rely on paragraph 2A of article 62 for the completion of the verification of client or beneficial owner information, the ASP is under a strict obligation to justify its actions and document its reasons for concluding that the verification of the information before the establishment of the business relationship would disrupt the normal conduct of its business, and that the risk of money laundering or terrorist financing is low.

Elias Neocleous

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