“Nature and purpose of the business relationship” (N&P) is information collected to understand why a customer wants to enter a business relationship with the financial institution (FI) and whether the reasons for the customer to establish (or continue, for journeys subsequent to the onboarding one) such business relationship are legitimate.
The N&P serves a dual goal:
- It feeds the determination of the overall customer risk profile1.
- It is a factor considered in the set-up of the detecting logic in the transaction monitoring (TM) system.
The relationship of N&P towards goals 1 and 2 is bi-directional, because the overall customer profile as well as the alerts generated by the TM system can also lead to review the N&P and/or increase the amount and depth of information collected to fulfill and substantiate the N&P requirement.
1 By “overall customer risk profile” it is intended both the data collected (for example, entity type, industry sector, whether the customer is a shell company) as well as the dynamically calculated risk, and the AML profile applied to the customer.
The Target Operating Model of banks as well as their policy and procedures can be very different. What to ask about N&P, when to ask it, how and by whom, can easily constitute a challenge when trying to be on one side compliant with requirements, but on the other side trying to be operationally efficient and to provide a smooth customer experience.
The main challenges are:
- Will the customer provide some of the answers directly, which will then be checked
by a FI employee?
If yes, at which point in time within the onboarding/review process?
- Since the extent to which the N&P is investigated may depend on the customer risk profile, how to calibrate this dependency with the fact that at the point in time when the N&P is collected, the customer risk may not be the definitive one.