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CS Professional · IFSCA - Regulations, Listing and Compliances · Capital Market Intermediaries

Kaveri Capital, an IFSCA-registered intermediary, onboards a new client. Its compliance officer says that because the client was introduced by a long-standing customer, the intermediary may skip collecting the client's identity and risk profile documents. How should this be assessed?

The assessment is incorrect. An intermediary must complete client due diligence and KYC before dealing with a client, irrespective of who introduced the client. A referral is not a substitute, and diligence cannot be postponed until after the first transaction.

  1. ACorrect, because a referral from an existing customer substitutes for due diligence
  2. BIncorrect, because the intermediary must still carry out client due diligence and know-your-client checks before dealing, whatever the source of introductionCorrect
  3. CCorrect, but only if the client invests less than a prescribed amount
  4. DIncorrect, but diligence is needed only after the first transaction is settled

Explanation

Intermediaries in IFSC must apply KYC and client due diligence under their anti-money laundering and financial crime obligations before establishing the relationship. A referral does not remove this duty. Doing diligence only after the first trade defeats its purpose.

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