VIDEO: Reg GG Certification Form
In this Compliance Clip (video), Adam answers a question about the unlawful internet gambling rules. Specifically, a question is asked about whether a certification form is required for commercial customers and whether there is any way to reduce the new account burden in relationship to Reg GG rules. This video a a fairly comprehensive review of the due diligence requirements under Reg GG, and would be good to review with your operations staff responsible for ensuring compliance with Reg GG.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to talk about the Reg GG certification form and whether or not you actually need one on your financial institution. The question I received this week and saw was something like this: “Under Reg GG and the rules for unlawful internet gambling, I see many banks that require business customers to complete and sign a certification form. Is this certification form actually required?” That is the question.
Of course, the answer to this comes from Regulation GG, but it specifically comes from Part 233.6(b). Let's take a look at this 233.6(b) of Regulation GG. It actually says that if a financial institution conducts due diligence, this is enough to comply with the rule for unlawful internet gambling. Essentially, the way the rule is written, in short, you need to be conducting due diligence to make a determination whether or not a business is conducting unlawful internet gambling. If you don't do the due diligence, there'll be other steps you have to jump through. When the rule originally came out, it was a whole mess. They wanted the financial institutions to police transactions and look for unlawful internet gambling. The way the final rule was written was that you must conduct due diligence to make a determination on whether or not a commercial customer is engaging in unlawful internet gambling. You have to conduct this due diligence.
The due diligence of course must be done at the time of establishing the account or the relationship. So really when you're opening the account, it has to be done then, and many of your financial institutions have incorporated this into your account opening process. It’s usually on your application forms, or some sort of account opening process and it’s usually incorporated in where there's questions about whether or not a customer conducts unlawful internet gambling, or even just internet gambling. You're doing this due diligence and it should be built in your new account process for commercial customers.
233.6(b)(2) says that based on your due diligence, your financial institution must make a determination regarding the risk the commercial customer presents in engaging in an internet gambling business. You must look at the due diligence and make a determination whether or not it's likely that they are engaging in internet gambling.
A lot of you ask the question, say “Do you engage in internet gambling?” If the answer is no, that's your due diligence to say, hey, we’ve done our due diligence, they said no. So that's your due diligence. If they said, yes, of course you would then proceed on to determine if that internet gambling is actually legal or not legal.
The first step is to conduct due diligence, the second step is to make a determination. Then if the determination shows that there is minimal risk of your customer engaging in internet gambling business, then nothing else is needed at that time. However, if your financial institution cannot determine that there is minimal risk that your customer is engaging in an internet gambling business, then your financial institution, as one option, would get a certification from the customer saying that no, they do not deal in unlawful internet gambling. That would be a certification form. It's separate from the due diligence. Some financial institutions do require that. That's really only needed if your due diligence isn’t clear, you cannot make that initial determination.
Of course, if your customer does engage in lawful internet gambling, then there are some additional steps you have to do, but this question is really focused on that certification form. So the certification form is only required if your financial institution conducts due diligence and cannot make a determination whether or not your customer is engaging in internet gambling. If you can't make that determination, you have to create that form.
What this really comes down to is if you have a good due diligence process, you're asking the question, do you engage in internet gambling? And your customer says no, you really don't need a certification for it. It would be extra work and it's really unnecessary because you've been able to make that determination through your due diligence process that the customer is not engaging in internet gambling. That's all you need to do for Regulation GG 233.6 . Of course if they say yes, they engage in internet gambling then you have to get that certification form. Otherwise, you don’t.
That's all I have for you today in this Compliance Clip. I want to pull up Reg GG, I haven't talked about that in a while. Hopefully this was a good refresher for you. I recommend maybe taking a look at your processes, making sure you don't have too much in there. If you’re requiring a certification form for everybody, you might be able to revise your process and make it a little bit simpler in your organization which will speed up your application, opening time and give some prize to your compliance department for taking away some burden, which is always a good thing.