On September 9, 2024, a mediator from the French Financial Markets Authority (AMF) issued conclusions regarding the dispute over the closure of a client’s securities account. The account was closed because the client had failed to update her personal information as requested.
The Obligation of Due Diligence:
According to European Law, Directive (EU) 2015/849, 4th Anti–Money Laundering Directive, amended by the 5th Directive (EU) 2018/843 to strengthen some provisions. Establishes common rules for combating money laundering and terrorist financing across the EU.
Regulation (EU) 2019/2155, 4th Anti–Money Laundering Directive, amended by the 5th Directive (EU) 2018/843 to strengthen some provisions. Complements the directives by specifying requirements for fund transfers and information on beneficial owners.
The Anti–Money Laundering and Counter-Terrorist Financing control is based on three main pillars: the obligation of due diligence, the obligation of internal organization, and the obligation of cooperation.
According to French law, as part of the due diligence obligation, under Article L.561-5-1 of the French Monetary and Financial Code (CMF), “Before entering into a business relationship, persons mentioned in Article L. 561-2 collect information relating to the purpose and nature of this relationship and any other relevant information. They update this information throughout the duration of the business relationship.”
Article L.561-6 of the CMF further stipulates that “Throughout the duration of the business relationship and under the conditions established by a decree from the State Council, these persons exercise constant due diligence and conduct a careful examination of the transactions carried out, ensuring they are consistent with the up-to-date knowledge they have of their business relationship.”
Article L.561-8 I provides that “When a person mentioned in Article L. 561-2 is unable to meet the obligations set out in Article L. 561-5 or Article L. 561-5-1, they do not execute any operation, whatever its form, do not establish or continue any business relationship, and may submit the declaration provided for in Article L. 561-15 under the conditions set forth in this article. If a business relationship has already been established under Article L. 561-5 IV, they must terminate it, and the declaration under Article L. 561-15 must be made under the conditions set out in that article.”
What Does This Mean for Financial Institutions?
Financial institutions, in accordance with their obligations under the CMF and AML regulations, are entitled to request that clients update their personal information. If the institution is unable to collect the necessary information to fulfill its legal obligations, the law requires the institution to suspend or terminate the business relationship.
However, it is the institution’s duty, acting in good faith, to notify clients whose information needs updating. Otherwise, the decision to close a securities account could be perceived as unilateral.
The Goodwin team will be pleased to assist you with your AML/CFT procedures.
This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.
