Effective Know Your Customer Compliance In 3 Easy Steps
To assess client risk and to comply with anti-money laundering (AML) rules, Know Your Customer (KYC) processes are essential. Knowing a customer's identity, their financial activity, and the risk they pose is necessary for effective KYC.
Tip: When carrying out Know Your Customer KYC screening, a challenge many organizations face is determining whether data refer to the same entity or multiple, ...
A financial institution's (or company's) "KYC" procedures include:
Identifying the customer
Recognize the nature of the customer's operations (the main objective is to confirm the legitimacy of the customer's funding source).
Analyse the customer's money laundering risks in order to keep an eye on the customer's behaviour.
The following components must be present for a KYC program to be created and maintained:
1. Program for Customer Identification (CIP)
Even if acquiring this data upon account opening is sufficient, the institution is nevertheless required to confirm the account holder's identity "within a reasonable period." Documents, non-documentary methods (such as verifying the information given by the client with consumer reporting agencies, public databases, among other due diligence steps), or both can be used as part of identity verification procedures.
These processes constitute the foundation of CIP; but, just like other Anti-Money Laundering (AML) compliance standards, they shouldn't be adhered to arbitrarily. To offer ongoing direction to workers, executives, and for the benefit of regulators, they need to be explained and formalised.
2) Customer Due Care
Due diligence comes in three levels:
When there is little risk of money laundering or terrorism funding, simplified due diligence (SDD) is used instead of a comprehensive due diligence process. For instance, accounts or accounts of little worth.
In order to give a better knowledge of client behavior and reduce related risks, Enhanced Due Diligence (or "EDD") is the term used to describe additional information gathered for higher-risk consumers. While some EDD variables are clearly mentioned in a nation's laws, it is ultimately up to a financial institution to assess its risk and take precautions to make sure that its consumers are not put at risk
3) Constant observation
A single check of your consumer is insufficient. You must have a procedure in place to continuously keep an eye on your customers. In accordance with criteria established as part of a customer's risk profile, the continuing monitoring role comprises control of financial activities and accounts.
AML screening is one of the methods used for risk assessment of a company's existing or potential customers under AML guidelines.