Overview of the Customer Due Diligence (CDD) Regime
In Korea, financial institutions are required to conduct Customer Due Diligence (CDD) under the Act on Real Name Financial Transactions and Guarantee of Secrecy (Real Name Financial Transactions Act) and the Financial Transaction Reports Act (FTRA). The Real Name Financial Transactions Act, which was enacted in 1993, provides for basic CDD measures. It effectively prohibits opening or maintaining of anonymous accounts or accounts under fictitious names and requires financial institutions to check and verify the real name of the customers.
Amendment of the FTRA, which was promulgated in January 2005 and came into force in January 2006 expanded the scope of the CDD in terms of the type of financial transactions subject to CDD requirement and the types of customer identification information to be checked and verified.
When Customer Due Diligence is required
Opening of new accounts
Article 5-2(1)(1) of FTRA requires financial institutions to identify and verify the identity of their customers when they open new accounts. Article 10-2(2) of the Enforcement Decree of the FTRA defines “opening a new account” to mean “entering into a contract with a financial institution to initiate a financial transaction”. Article 2(2) of the FTRA defines “financial transactions” comprehensively, such that CDD is required whenever establishing business relations.
Occasional financial transactions above the designated threshold
Article 5-2(1)(1) of FTRA requires customer identification and verification for occasional transactions above the designated threshold of KRW 20 million for domestic currency transactions and USD 10,000 for foreign currency transactions. An occasional transaction is a financial transaction carried out without using an account opened at a financial institution (Article 10-2(2) of the Enforcement Decree of the FTRA). It includes, for example, receiving and paying cash without use of an account (including remittance or deposit without a passbook); obtaining or cashing a cashier’s check, purchasing or selling traveller’s checks; safeguard deposit; buying and selling prepaid cards, and wire transfers.
Required Customer Due Diligence measures
Under Article 5-2(1)(1) of the FTRA and Article 10-4 of the Enforcement Decree of the FTRA, financial institutions are required to identify and verify the identification of customers. The customer identification information that financial institutions are required to check and verify for each category of customers is set out in the table below.