A digest of the UK Financial Markets Standards Board (FMSB) standards for client onboarding

The UK Financial Markets Standards Board (FMSB) was established to enhance the fairness and effectiveness of wholesale financial markets by addressing uncertainties in trading practices and promoting adherence to high standards. The FMSB aims to reduce ambiguity and ensure consistent market practices.

The board actively scans for emerging risks and trends, engaging with a broad range of industry participants and public authorities, while also contributing to development of international market standards, playing its role in maintaining the integrity and efficiency of global financial markets.

The FMSB recently provided guidelines for client onboarding documentation and processes. Here is a summary of some of the key points and takeaway actions for obliged entities.

The FMSB documented standards for client onboarding, including recommendations on processes; details related to required evidence and data; and how information about customers and connected parties can be verified.

The board’s recommendations for onboarding evidence include:

• Identity verification: It's important for entities to gather documents that confirm the legal name, any previous names, legal form, registered address, country of incorporation, and other identity-related details about customers.
• Business verification: Financial institutions (FIs) should also collect details about the type of industry, what the business does, its main location, regulatory status, and other relevant business information.
• Structure verification: FIs should identify and confirm the individuals and entities that have significant influence over the client or the client’s business, such as direct and indirect shareholders, Ultimate Beneficial Owners (UBOs), and key controllers.
• Connected parties: It’s important to collect and verify information about connected parties, such as authorized signatories and account opening agents.
• Supplementary operational data: FIs should also try to gather additional operational data like a Legal Entity Identifier (LEI), any settlement instructions, and other additional contact information.

The FMSB provides detailed mapping of suggested documents to the required data points needed for onboarding a client. The map also indicates which documents are usually publicly available and which are recommended as non-public evidence. It outlines a hierarchy of sources including "trusted market infrastructure providers", from government agencies to business entities that provide specific governmental services to documents provided directly by clients (which will not have been externally verified). The hierarchy of document types or evidence is based on their likely credibility and significance.

The board provides a step-by-step process for sourcing evidence, starting with independent verification and moving to client-provided documents if necessary. The FMSB emphasizes the importance of sourcing documents as close to the creator of a particular data point as possible. This is to try to acquire the most valid information, minimizing the chance of errors.

While the standards maintain that, wherever possible, populating and verifying the data should be done through sources other than the client, when it does become necessary to try to acquire data or documentation directly from a client to conduct due diligence, the FMSB offers a template for communicating this requirement to clients. The template helps explain why the additional documentation may be needed, as well as why there is a need for further due diligence.

The need to collect further documentation or data from clients may occur in borderline or high-risk cases when enhanced due diligence is necessary and/or information can’t be found/verified from other digital sources in the public domain.