Should we charge for Due Diligence?

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Boardroom Conversations - Kate Burt, HiveRisk

This is an area which is often misunderstood by firms and, whilst many firms are now confident to factor onboarding into their pricing, there are many firms that simply don’t realise that this is an option.

The reluctance, particularly from SRA regulated firms, stems from the previous position that firms could not do this. In November 2020, the SRA confirmed that firms could charge for CDD checks provided:

• SRA Transparency Rules are complied with

• CCLs and TOBs are amended accordingly to reflect that the firm will be recovering such administrative charges, in accordance with 8.6 and 8.7 of the SRA Code of Conduct.

Full details can be found online: Law Society’s note: Can I charge for due diligence checks?

Can I pass the cost of conducting customer due diligence under the money laundering regulations onto my client? – is a question asked on the SRA website.

Its response is clear: “The costs of customer due diligence (eg, identification and verification or source of funds checks) can vary depending on the type of client and level of money-laundering risk they pose. You can pass the costs of customer due diligence on to your clients, however the cost will need to be clearly stated in the firm’s terms and conditions. It is important that clients are informed of and understand the cost in advance as this will enable them to instruct an alternative firm if they are not agreeable to the cost.”

Fees versus Disbursements

Care should be taken when determining how the costs will be passed on to the client.  For fees versus disbursement (or both), charging should be carefully considered, engaging a specialist where required to avoid falling foul of regulatory considerations.

Commercial Considerations

Some firms choose not to pass on CDD costs as to do so would make them less competitive on price in the market. This may not be an issue for those who predominantly deal with a client base who is not price sensitive.

The important thing from a boardroom perspective is to understand that CDD costs can be passed on. It is at the boardroom’s discretion whether this is the right approach for your firm.