Know your customer
In terms of compliance, the starting point for every customer relationship is a Know Your Customer due diligence process (KYC). KYC is an integral part of the investment process and is followed throughout the entire life cycle of an investment.
The aim of regulation is to have uniform procedures regarding customer due diligence that are observed in global financial markets. The Financial Action Task Force, FATF, an intergovernmental task force to combat money laundering and terrorist financing, which operates under the auspices of the OECD, plays an important role. The same is true of the European Commission, which, for its part, identifies countries at high risk of money laundering and terrorist financing.
The prevention and detection of money laundering and terrorist financing is regulated in Finland by the Act on Preventing Money Laundering and Terrorist Financing (444/2017 Money Laundering Act). In addition to the law and government regulations, Finnfund aims to follow the best market practices in procedures against money laundering and the financing of terrorism.
Regulation has significantly evolved over the years and continues to evolve, contributing to the development of our own processes and tools. The starting point for customer identification is Finnfund’s risk assessment. In this separate risk assessment, Finnfund assesses the risks associated with Finnfund’s operations from the point of view of preventing money laundering and terrorist financing. Based on the risk assessment and the requirements of the Money Laundering Act, Finnfund sets out the level at which each customer identification is conducted. Finnfund also verifies that the customer is not on the UN, UK, EU, or US sanctions lists and is not subject to financial sanctions. In terms of the Money Laundering Act, Finnfund must report any suspicious transaction to the Finnish Financial Intelligence Unit (FIU).
In addition to the KYC due diligence process, projects are monitored during the customer relationship to keep the identification information up to date. Finnfund’s riskiest projects require conducting enhanced customer due diligence, which includes specific actions and checks prior to commencing the customer relationship, as well as enhanced continuous monitoring. If Finnfund is unable to carry out the customer due diligence process, it may not establish a customer relationship, and hence may not invest in the company.
In 2022, Finnfund went through an organisational change and, as a result of that, an independent compliance function has been established. Besides the KYC process, the compliance function is responsible for whistleblowing and sanctions-related issues. A senior compliance counsel manages the operations of the function. KYC due diligence verifications and monitoring work are conducted by two dedicated employees. They are assisted by an investment officer from each project team and, if necessary, a legal counsel. The senior compliance counsel serves as the person in charge of KYC and the contact person for money laundering affairs.
Mandatory anti-money laundering and terrorist financing training is provided for investment personnel and relevant support functions on a regular basis. New employees also receive KYC training. In addition to customer due diligence and monitoring, Finnfund ensures that each financing agreement contains clauses (satisfactory to Finnfund) related to preventing money laundering and combating the financing of terrorism.