A number of questions have come in relating to how due diligence will work. It may be that you have already received a questionnaire from trading partners asking all sorts of details about your business.

If you haven’t received one there could be one winging its way to you, so I thought I might try to interpret what the requirements are. 

This is an area that is far from settled and will continue to develop and evolve for some time.

Don’t be alarmed if you receive a letter from a trading partner seeking information about your business. “Due Diligence” is increasingly becoming the new normal, The due diligence requirement already applies to traders in bond and will soon apply to duty paid wholesalers. 

At its heart, it requires businesses to know who they are trading with and then understand the risks of that relationship. The aim is to avoid traders introducing smuggled or counterfeit goods at any part of the supply chain.

It will be a matter for individual businesses to satisfy themselves that their trading partners are suitable.  Whilst trade buyers will eventually be able to see that their proposed trading partner has an AWRS registration and is a “fit and proper” person, that alone will not be enough to satisfy due diligence requirements.

There is some guidance from me on the front page of the WSTA website, which you can access through the members’ section and log-in:

 

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This considers the sort of questions that a business might wish to ask and, in turn, provide to its trading partners.  The list is neither exhaustive not prescriptive and not all questions will be necessary in every case.

I am aware that a number of businesses are not prepared to answer all of the questions that are being asked of them – directors’ passport and home address details are a particularly sore point. There is no obligation to supply all the information being requested.

Common sense will have to come into play here and the person asking the questions will need to consider whether they have enough information to go ahead with the trade.

 If some information is absent – this can increase commercial risk, or at least affect the terms on which parties are willing to trade. 

Put simply, the more information you have, the more comfortable you may be in offering better credit terms, increased volumes and having less frequent reviews of the relationship.

The most important point is that due diligence is not about having answers to a set list of questions. Think about the questions you need to ask and analyse  the effect of the answers you receive against your research and against your business’ risk appetite.  

I believe there is a learning curve for businesses and HMRC and that the official guidance will develop further once it is up and running in the real world.

 Competition laws may also preclude companies from seeking some information about, for example, the underlying reasons for a deal or its profitability.

There may be a role for third party due diligence consultants to hold information securely and report a clean bill of health (or otherwise) to an inquiring party without breaching confidentiality.

I am working on a model due diligence policy and we also hope to be able to offer the services of a selection of external due diligence consultants to members in the near future.