Process of Know-Your-Customer (KYC) and Compliance Requirements
When a customer opens an account or begins doing business with an organisation, Know Your Customer compliance begins. They also play a role when the customer logs into the account. There are a few key elements to establishing KYC compliance.
Due Diligence for Customers
Conducting extensive customer due diligence (CDD) for all customers is a cornerstone of an effective KYC compliance programme. Financial institutions must know their consumers and safeguard their financial ecosystems from criminals, terrorists, and politically exposed persons (PEPs) who could constitute a threat.
Because business clients range in terms of transaction kinds, customers, locations, scale, and business lines, CDD initiatives will vary as well, ranging from basic to standard to advanced CDD. CDD will entail confirming customers' identities, comprehending the monetary thresholds for necessary reporting and record retention, as well as the specific FinCEN rules controlling various sorts of transactions.
When assessing the right level of due diligence, a corporation should check for red signs related to:
Beneficial proprietors of an account or client are identified.
Information about the customer's various personal and professional relationships
Salary or yearly sales estimate
Policies and procedures for anti-money laundering are in place.
Documentation from a third party
Review of media sources to determine the reputation of the local market
Program for Customer Identification
The construction of a Customer Identification Program (CIP) as part of the onboarding process is the second component of Know Your Counterpart compliance since it "forms a reasonable belief that (the firm) knows the genuine identity of each customer." Every individual or business customer who wants to open an account must have their identification verified by the financial institution.
During customer onboarding, every CIP must have a risk-adjusted method in place to authenticate the account holder's identification. Personally identifiable information such as the customer's name, date of birth, address, and identity number are required to open an individual financial account. The type of account in question, typical transaction size, quality of the information provided by the customer, characteristics of the organisation as a customer, and the location(s) where the customer's transactions originate or terminate are all factors to consider.
Reviewing ID documents, non-documentary procedures (e.g., comparing information provided by the customer with consumer reporting agencies, public databases), or a mix of both are used to verify identification.