Paul Oberschneider

Abbreviated pain — be prepared for KYC, AML and CDD



Two fundamental questions underpin the development finance provider’s entire decision-making process.

Due diligence notwithstanding, everything hinges on:

  • do we like the deal?
  • do we like the team?
     

Developers must be prepared to answer anything asked of them or risk delaying the deal.

The first question can be answered fairly accurately and objectively from experience and by analysing readily available quantitative and qualitative data. Comparable transactions, track records and financials of the teams involved, project size, location, target audience and financial margins are key metrics in filtering projects that work from those that won’t.

But do we like the team?

This is a more complicated question. It’s not down to amiability but answered by looking at those involved — their development track record, the management team, relationships among the team and their appointed professionals.

We must decide whether we like the team as borrowers as well as developers; do we want to fund them? Enter the know your customer (KYC), anti-money laundering checks (AML) or the all-encompassing customer due diligence (CDD) — crucial to satisfy both capital providers and a host of regulations to deter financial crime.

Funders must gather the following about every potential borrower, plus any third party providing more than 10% of the total equity:

  1. Proof of address and identity: If you borrow money to fund developments, having recent, certified copies of utility bills, passport or driving licence to hand will save a lot of time and effort.
  2. Customer due diligence form: The personal information needed to understand you and your involvement in the transaction — simple questions, easily completed.
  3. Source of wealth: Your ability to support your investment — the origin of your wealth, your seed funding and your professional history. This information is key to relating the borrower and their experience to the size and complexity of the investment; the more detailed it is, the easier it will satisfy the funder.
  4. Source of funds: This explains where the funds for your equity contribution come from. Again, more is more here — a funder will want the full story, which must tie-in with the source of wealth information.
  5. Statement of assets and liabilities: This supports the source of wealth and funds questionnaires and indicates financial strength and credit worthiness. Funders are not the taxman and should only be interested in the big picture — the net value of assets — to understand and be comfortable with potential borrowers.
  6. Credit and background checks: Conducted using renowned firms, such as Experian, Dow Jones and LexisNexis, to ensure there are no surprises from your past. Here, no news is good news.
     

Such checks don’t determine whether the funder should invest, but whether they can invest. They may seem arduous and even intrusive — sharing personal information always does — but to have funding approved, and approved in a timely manner, they’re a necessary evil.


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