Banking Due Diligence: a reminder of the rules

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The obligation of vigilance on the part of banks is the subject of extensive case law. Here are the current rules applicable to institutions.

What is bank customer due diligence?

Banking liability implies a duty of care. This takes several forms.  

Firstly, the obligation of banking vigilance within the meaning of Articles L561-1 and 2 of the Monetary and Financial Code is aimed at combating money laundering and terrorist financing for the benefit of TRACFIN. 

There is also a whole body of case law relating to a broader obligation of vigilance and surveillance to be practised with regard to the clientele of an institution. On the basis of this case law, without violating the principle of non-interference in his client's affairs, the banker is required to alert him to " any apparent anomaly " relating to the management of his account. The case law does not expressly define the anomalies concerned, but the examples that emerge from litigation are, in general, "formal and material" anomalies (erasures or overwriting of documents), suspicions of illegal transactions, suspicions of fraudulent transfer orders (a phenomenon that has been on the rise in recent years due to the ease of usurping an identity via the Internet) or suspicions that a loan has not been used for the purpose agreed by the parties to the contract. 

Banking Due Diligence and KYC 

Indeed, when a bank customer is the victim of a fraud falling under one of these anomalies, he or she can initiate civil proceedings and try to hold the bank liable for failure to comply with its duty of care (lack of warning, lack of confirmation of identity before carrying out a transaction). 

In these regulatory conditions, where the obligation of vigilance is being reinforced and there is an increase in litigation on this subject, the KYC process takes on its full importance (link to the article on client onboarding). It allows the bank to authenticate its customer, but also to get to know him better. The KYC data provides concrete and refined support to meet the obligation of vigilance and banking supervision. 

The main obligations of the bank, in brief :

  1. The duty of loyalty and information :
  • Conveying all the information needed to understand a banking product or service

  1. The duty of care :
  • Detecting and reporting anomalies 

  1.  The obligation of non-interference :
  • Not to interfere in the affairs of its client, either by inquiring on its own initiative or by carrying out transactions directly on the client's account

  1. The duty to warn :
  • Identify the customer's profile and financial situation before any proposal/acceptance to sell a product/service, especially in the context of a loan (borrower profile)
  • Warn the client of the possible consequences of his choices, in view of his profile

  1. The duty of bank secrecy :
  • The bank is not allowed to disclose certain information to third parties (except in exceptional cases, such as legal proceedings, or at the request of certain authorities such as the Banque de France or the AMF). 

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