Relax, It’s Due Diligence Not Brain Surgery

Clients often tell us that many businesses (particularly banks and large corporate trustees) seem determined to overcomplicate their due diligence and take on requirements almost to the point where they begin to wonder whether they actually want to take on any clients at all.

At Middleton Katz, we don’t believe in providing our clients with numerous forms to complete; our goal is make it as easy as possible to do business with us and we do this by keeping our ‘take on’ procedures as simple as we possibly can … not forgetting, of course that we have to comply with Isle of Man law and regulation.

Thankfully, the reality of the Isle of Man compliance requirements is more straightforward than you might think.

Yes, there can be some ‘devil in the detail’ but, in essence, the requirements are both simple and sensible.

There are just three strands to consider …

(1) Documentary Requirements: The documentary requirements relate to the persons or entities that are connected to the proposed fiduciary structure or are going at act as its directors; this is the usual passports / utility bills but it can be a bit more involved where a new company is to be part of an existing corporate structure. Once we understand the shape of the whole corporate /trust structure involved we can be specific about the requirements for a particular case. It is worth mentioning that the certification requirements for passports and address confirmations are quite prescriptive. A copy of our basic information sheet can be found here; the certification requirements are shown on page 2. There is very little leeway on these so the requirements should be followed carefully by the certifier.

(2) Background Information about the Client: We also require background information about the client – career history etc. – usually this can be addressed by the Introducer, also these days it is very often possible to fill in additional information from online sources such as LinkedIn. Occasionally if the client is a PEP we engage a specialist firm to prepare a report specific to them. We also need to properly understand the source of funds and wealth of the client – of course this is more of a focus where the business will be substantially capitalised. The purpose of all this is to ensure that the business proposed is consistent with all the other circumstances and the client’s background.

(3) Information about the Business. Finally, we require information about the nature of the business and its proposed development as well as details concerning expected turnover and who the counterparties are. We would need this information to do our jobs as corporate administrators / directors anyway so we don’t really see this as due diligence information – it is more a matter of having a discussion so all the parties clearly understand the client’s requirements.

In practice, information about (2) and (3) above are usually obtained in the natural course of the ‘take on’ and documented by us in the file accordingly. Usually this is entirely painless for the client who often doesn’t realise it is part of the process.

Overall, the information collected allows us to form a view on the validity of the client case and determine whether we are happy to take the business on (i.e. a risk based approach). A prescriptive approach doesn’t work because every case is different so one size doesn’t fit all.

photo credit: melodramababs via photopin cc

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