Merchant due diligence by banks

Merchant due diligence is a process that banks use to assess the potential risks associated with doing business with a merchant. The process typically involves collecting and verifying information about the merchant, such as their business name, address, legal structure, business activities, and financial history.

The objective of merchant due diligence is to ensure that banks are not inadvertently facilitating fraudulent or illegal activities through their relationship with the merchant. Merchant due diligence procedures may include:

Customer Identification: Banks are required to verify the identity of their merchant customers using reliable and independent documents, data, or information.

Business Due Diligence: Banks are required to assess the potential risks associated with doing business with a particular merchant, and to conduct enhanced due diligence for high-risk merchants, such as those in high-risk industries or with a history of financial crime.

Ongoing Monitoring: Banks are required to monitor their merchant customers’ transactions and activities on an ongoing basis to detect any unusual or suspicious activity, and to report any suspicious transactions to the relevant authorities.

Compliance and Risk Management: Banks are required to have a robust compliance and risk management framework to manage the risks associated with their merchant customers, including monitoring the merchant’s compliance with relevant laws and regulations.

Merchant due diligence is an important part of a bank’s compliance and risk management framework. It helps to protect banks and their customers from financial crime, and to maintain the integrity of the financial system.