Reliance: What is it and how may it be used?

It is important to understand that the purpose of reliance is not to save time for the Art Market Participant (AMP). Instead, the regulatory intention is that reliance reduces duplication for the customer so that they needn't provide the same information twice, particularly in transactions where more than one regulated party is involved.

Reliance can only be placed on another regulated business that is subject to AML supervision. This is because the relying business should be confident that the party conducting the due diligence is itself legally required to follow AML regulations and is supervised by an appropriate authority.

In the art market, this typically means another Art Market Participant (AMP) that is registered with the relevant supervisory body (for example HMRC in the UK or the County Administrative Board in Sweden.

As a regulated business, you may not rely upon:

• Private individuals
• Unregulated businesses
• Advisors or intermediaries who are not subject to AML supervision
• Customers themselves

Even when reliance is used, the ultimate responsibility for compliance remains with the relying business. This means the relying AMP should be satisfied that the other regulated party has conducted appropriate due diligence and that the reliance arrangement is properly documented. Some AMPs don’t want to take such liability and therefore don’t rely on other regulated businesses.

At a minimum, this should include:

1) A reliance letter 
This document formalises the arrangement between the two businesses and confirms that the regulated party conducting the CDD agrees that another AMP may rely on it. The reliance letter should confirm that the business conducting the due diligence will retain the underlying documentation and promptly provide copies to the relying AMP if requested, for example in the event of regulatory inspection or law enforcement request. Proper documentation is essential, as regulators may request evidence of reliance arrangements during supervisory audits.

2) Identification of the customer
The reliance documentation must clearly specify the name of the customer for whom the due diligence has been carried out. Reliance is applied on a case-by-case basis, meaning it relates to a specific customer rather than acting as a blanket agreement.

3) Confirmation of the CDD conducted
The regulated business conducting the checks should confirm that the required CDD has been carried out in accordance with AML regulations.

These levels of due diligence involve verifying the customer’s identity and assessing the potential risks associated with the customer and transaction.

How ArtAML™ supports reliance

ArtAML™ provides tools that help Art Market Participants manage reliance arrangements in two ways: 

1) Relying on another AMP

If another regulated AMP has already conducted customer due diligence on a client involved in the transaction, you may rely on that due diligence. Within ArtAML™, this can be recorded by entering the relevant gallery or business as your reliance partner.

Recording this information within the platform ensures that the reliance relationship is clearly documented within your compliance records, which can be helpful in the event of regulatory review.

2) Being relied upon by another AMP

Where your gallery has conducted the due diligence and another AMP wishes to rely on it, ArtAML™ allows you to generate a KYC certificate.

This certificate confirms key information about the due diligence carried out, including:

• The name of the customer
• The level of CDD conducted (Standard or Enhanced)
• The outcome of the due diligence checks

This provides a clear summary of the due diligence performed, which can then be shared with the relying AMP as part of the reliance process.

In addition, ArtAML™ provides a reliance letter template that can be used between the two AMPs to formalise the arrangement. The template is designed for the AMP that conducted the CDD to issue to the AMP relying on it, confirming that the necessary due diligence has been performed and that supporting documentation can be provided if required.

However, reliance should be used cautiously. It may only be applied between regulated businesses, must be supported by clear documentation, and may only be based on Standard or Enhanced Due Diligence.

ArtAML™ support AMPs to record, document and manage the use of reliance in line with regulatory requirements.