What are High-Net-Worth Individuals?
High-Net-Worth Individuals (HNWIs) are generally understood as individuals with over 1 million USD in liquid assets. However, there is no agreed-upon international legal definition for what exactly constitutes an HNWI and the calculation of liquid assets does not consider personal assets such as primary residences, durable goods or collectables.
Due to their notable wealth, HNWIs will typically have their finances and investments overseen and managed by personalized wealth managers and investment funds. This is done to streamline administration and maximise the gains that an individual can extract from their wealth with regard to taxes and estate planning.
High-Net-Worth Individuals Within AML/CFT Regulatory Compliance Obligations
There are specific Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) laws that regulate the finances and transactions associated with HNWIs.
The purpose of these due diligence checks is to verify the integrity and legitimacy of the funds in question and ensure that they are not illicit and associated with financial crimes such as corruption or money laundering.
This additional regulation and oversight are carried out because large sums of money carry represent an increased risk of financial crimes such as political corruption, money laundering and the financing of terrorism.
HNWIs are also frequently the target of identity theft scams. Impersonations of identity in order to defraud followers or business partners – as well as identity theft to steal money from financial institutions under the name of an HNWI – are both common schemes and both require comprehensive identity verification and due diligence checks to mitigate.
PEP Checks and Sanction Checks for High-Net-Worth Individuals
Although AML/CFT laws will vary depending on the specific jurisdiction in question, financial institutions will typically be obligated to conduct PEP and Sanction checks on HNWIs. The failure of a financial institution to conduct proper due diligence on a HNWI can expose that financial institution to considerable regulatory scrutiny in the long term, potentially even leading to the imposition of fines, penalties and sanctions.
Because HNWIs hold such considerable power as a result of their wealth, HNWIs represent a higher risk of being exposed to risky conflicts of interest that may impact how a financial institution is legally required to treat the HNWI.
Should a HNWI clearly be a Politically Exposed Person (PEP), the regulatory requirements for enhanced due diligence checks will scale accordingly. HNWIs who are also PEPs will have to undergo considerably stricter due diligence checks and will likely be subject to ongoing monitoring to account for their increased risk level.
Because of their substantial assets and capital, HNWIs are typically viewed by financial institutions as falling within a higher-than-average risk category and are legally obligated to comply with a broader range of due diligence checks.
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