Enemy at the gate

The payment value chain; which PSP must apply CDD and TM on who?

Wwft institutions must perform Customer Due Diligence (CDD) on their customers and their customers' UBOs, perform transaction monitoring (TM) over the business relationship with their customers and report unusual transactions to the authorities. When a card-acquirer provides payment services to a payment facilitator (PFac), it is debatable whether the PFac's merchants (Sub-Merchants) qualify as the card-acquirer's customers and business relations within the meaning of the Wwft, whether the card-acquirer has CDD and TM obligations on the Sub-Merchants, and if so, what the scope of those obligations is. This article seeks to examine this matter.

1. Gatekeeper system

Financial undertakings such as banks, electronic money institutions, and payment institutions have been appointed a crucial role under the Dutc...

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The payment value chain; which PSP must apply CDD and TM on who?

1. Gatekeeper system

2. PFac Model

2.1. CDD and TM

3. Relevant Wwft definitions

3.1. Definition of Institution

3.2. Definition of customer

3.3. Definition of transaction

3.4. Definition of business relationship

3.5. Definition of correspondent relationship

4. CDD and TM

4.1. Risk-based approach

5. Scenario's and impact

5.1. Scenario 1 (no customer)

5.2. Scenario 2 (business relationship)

5.3. Scenario 3 (transactions effected?)

5.3.1. CDD

5.3.2. TM

6. Analysis of the applicable scenario

6.1. Is the Sub-Merchant a 'customer', of the card-acquirer because it has a transaction effected?

6.2. Does a 'Business relationship' exist between the card-acquirer and the Sub-Merchants?

6.3. Counter arguments

7. CDD and TM in correspondent relationships

8. Conclusions