District Circular Letters

February 22, 2001

BANKING SUPERVISION AND REGULATION:
COMMENT REQUESTED--
BASEL COMMITTEE ON BANKING SUPERVISION

To State Member Banks, Bank
Holding Companies, U.S. Branches
and Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

Release of Paper "Customer Due Diligence for Banks"

The Basel Committee on Banking Supervision, part of the Bank for International Settlements located in Basel, Switzerland, has issued a consultative paper, "Customer Due Diligence for Banks." The paper, a copy of which is attached, is part of an ongoing effort by the Basel Committee to strengthen risk management procedures in banks throughout the world. The consultative paper is also posted on the web site of the Bank for International Settlements at http://www.bis.org/publ/bcbs85.htm.

The Basel Committee developed this paper because they determined that many countries around the world have not developed basic supervisory practices with regard to money laundering and other financial crimes and instead look to the Basel Committee for guidance in these areas. The consultative paper, once adopted by national supervisors, will provide the framework for national supervisory standards with regard to customer due diligence.

The paper is a guide for national banking supervisors to establish minimum standards and internal controls to ensure that banks know with whom they are doing business. The essential elements for customer due diligence, as set forth in the paper, include customer acceptance policies, customer identification, monitoring of high-risk accounts, and risk management. While the paper broadly describes the essential elements for an effective customer due diligence program, the manner and means by which such programs would be implemented within a banking organization will depend on such factors as the nature of the business conducted, the size of the organization, and other factors that are determined by internal controls, policies, and procedures.

Comment Requested

The Basel Committee is inviting comments on the proposals set forth in the consultative paper from all interested parties, including national supervisors, banks, and bankers. Comments, with copies to the appropriate bank supervisory agency, must be submitted by March 31, 2001, to the following address:

Secretariat of the Basel Committee on Banking Supervision

Bank for International Settlements

CH-4002 Basel, Switzerland

FEDERAL RESERVE BANK OF SAN FRANCISCO