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Occasional transactions vs. Business relationships: What the difference means for CDD

For art market participants (AMPs), understanding the difference between an occasional transaction and a business relationship determines how customer due diligence (CDD) obligations apply. The distinction is straightforward in principle: it rests on whether there is an expectation of continuity, but worth setting out clearly, as occasional transactions are by far the most common scenario on the buying side.

What is an occasional transaction?

A transaction is occasional when there is no element of duration: no contract, no agreement that future transactions will occur and no ongoing connection between the AMP and the customer.

This applies even where a buyer has made multiple purchases from the same business. If each acquisition is independent — that is, there is no agreement in place for further transactions — each one is treated as occasional. The customer may be familiar, but the relationship is not continuous in the regulatory sense

Examples of occasional transactions in the art market include:

  • A buyer purchasing a work from a gallery, with no agreement in place for any future acquisition
  • A collector who has bought from the same dealer several times, where each purchase has been independent with no commitment to buy again
  • A buyer acquiring a work at auction
  • An artist or estate making a one-off consignment to a gallery
  • A private seller supplying a single work to a dealer for resale

An occasional transaction triggers CDD obligations where the transaction value is EUR 10,000 or more (in the UK, this threshold is imminently changing to GBP 10,000). The threshold applies whether the amount is paid in a single payment or across multiple linked payments.

When assessing whether payments are linked, consider whether they relate to the same purchase or invoice, or were made within a short timeframe for the same purchase. Where payments are linked, they are treated as a single transaction for threshold purposes.

CDD is conducted for each occasional transaction. Where a customer's KYC has previously been completed, a KYC refresh rather than a full re-run is appropriate. (A KYC refresh can be conducted using the 'New Version' feature in ArtAML™.)

There is no requirement for continuous or ongoing screening between occasional transactions. The obligation is to verify what is accurate at the time of the transaction and to take a documented, risk-based approach accordingly.

What is a business relationship?

A business relationship exists where the interaction between an AMP and a customer is expected, at the point of initial contact, to involve some element of continuity or duration.

Examples of business relationships in the art market include:

  • An artist working with a gallery
  • An art dealer or gallery regularly supplying an art advisor with works
  • A collector entering into an agreement to acquire a defined number of works over a set period
  • An AMP contracted to deliver works for an interior project over time

Where a business relationship exists, the customer is onboarded with CDD at the outset. Ongoing due diligence then applies for the duration of the relationship: CDD information must be periodically reviewed and refreshed to remain current and can also be triggered by an event.

Periodic review

For business relationships, CDD is refreshed according to the customer's risk rating: annually for high-risk customers and every three years for standard-risk customers.

Event-driven review

A KYC refresh may also be triggered outside the periodic schedule by a specific event or change in circumstance, including:

  • The start of a new engagement or contract
  • A change in beneficial ownership structure, business structure or activity
  • Doubts about the accuracy or currency of existing information
  • A change in the customer's risk rating
  • A result from sanctions, PEP or adverse media screening

Conclusion

The key distinction is the expectation of continuity. Occasional transactions are discrete and standalone; business relationships involve an ongoing connection. For most AMPs, the majority of buying-side customers will fall into the occasional transaction category, which means CDD is required at each transaction, but ongoing monitoring between transactions is not.