The ability to rely on another AML/CTF report entity’s KYC information was introduced to
improve customer convenience. The gap between theory and practice, however, has been a difficult one to close for many businesses.
Unlike outsourcing (which involves hiring an outside agent to perform KYC tasks), reliance
allows businesses to potentially offset the time and costs involved in KYC activities via another reporting entity. This also helps customers reduce the paperwork they need to submit.
Reliance in Practice
The Anti-Money Laundering and Counter-Terrorism Financing Act (Act) 2006 and Anti-Money Laundering and Counter-Terrorism Financing Rules (Rules) 2025, allows two forms of reliance:
- Case by Case Reliance (s 38 of the Act)
- Ongoing Reliance through anagreement (s 37A of the Act)
Case by Case Reliance
With case-by-case reliance, businesses can rely on another reporting entity’s KYC information for a single transaction. It is particularly useful for complex customers (such as trusts, companies or other structures) that would consume an inordinate amount of time to process.
Businesses wanting to leverage this provision need to first conduct due diligence on the third party looking to be relied upon (s 6-31 of the Rules). This involves assessing:
- The nature, size and complexity of the thirdparty’s business;
- The services the third party provides;
- The kinds of customers they provide services to;
- The delivery channels the third party uses to provide services; and
- The level of ML/TF risks in the country or countries where they operate or are a resident
While this is not insurmountable, the amount of time spent to acquire and process such information may unfortunately end up being equivalent to what they would have spent doing the KYC task themselves.
Ongoing Reliance through an agreement
Reliance agreements alleviate some of the burdens, by limiting the need to assess a third party for each and every transaction. It does not, however, entirely shift the regulatory burden onto the third party being relied upon. Businesses still need to ensure they regularly assess the third party (at least every 2 years) or if there is a significant change of circumstances (s 6-30 of the Rules). Reliance agreements are therefore best viewed as mechanisms to establish the initial basis for reliance – which regulators can ultimately rebut by citing prevailing circumstances.
Faced with the above, many businesses (particularly those with limited resources) chosen not to use available reliance mechanisms and/or opt into reliance agreements.
Changing Dynamics
With AML/CTF plans now fully bedded down and automated processing available, it is a good time to revisit things – particularly from a customer experience and cost savings perspective.
With policies, processes and procedures needing to be documented by all reporting entities, due diligence on AML/CTF risks is now much simpler and less onerous for all parties involved. What would have taken hours, if not days to do previously, can now be done in minutes. All it takes is the uploading of existing AML/CTF documents on both sides and some automated processing. Smaller service providers, who have had to decline complex customers, can now share the compliance burden with other providers. Case by case reliance is now a reality all regulated businesses should seriously consider as an easy customer experience win.
Similar considerations apply in relation to ongoing reliance agreements. An ongoing agreement
particularly makes sense if a business continually deals with another party in an adjacent industry or within a local geographic area. A legal and an accounting firm, for example, might serve a common community. Rather than each conducting their own customer due diligence, firms can leverage each other’s capabilities and resources to process KYC information. Having a reliance agreement in place will help streamline such arrangements – from a compliance cost and customer experience perspective.
Having the right perspective on agreements
As noted above, relying parties cannot contract away their obligations through reliance agreements. Those considering entering into reliance agreements should make sure it contains provisions to safeguard their regulatory obligations, as specified by s 6-29 of the Rules. The agreement should include:
- Warranties on the regulatory status of the third party;
- Warranties that AML/CTF risk management measures are in place;
- Warranties that KYC information can be obtained when required, including original documentation;
- The responsibilities of each party;
- Record keeping requirements;
- The right to have ongoing assessments on the third party, and
- Financial arrangements between the parties;
Reliance is a low hanging fruit regulated businesses should at least look into if they are wanting
to make a good impression with new customers, while saving on compliance costs. We have simplified the reliance due diligence and agreement processes. Below is a quick peek.