If a client cannot verify identity, which action is appropriate?

• A. Narrow the scope and continue.
• B. Terminate the business relationship.
• C. Ask for alternative documents and continue.
• D. Refer to regulator.

Answer: (B)

Establishing a client’s identity is essential for proper due diligence. If you can’t verify who the client is, you can’t assess risk, verify funds, or ensure the activity fits legal and regulatory requirements. Proceeding without verified identity creates a real risk of facilitating money laundering or other illicit activity and can expose you and your firm to penalties. The appropriate course is to terminate the business relationship—ceasing any further processing and documenting the reason. If policy or regulations require, you would later escalate or report as needed, but the immediate, correct action is to end the engagement.