A government-compliant KYC process must contain certain elements. These include:
Customer Identification Program (CIP) — Your CIP must include a robust client investigation that may include searching public records, performing criminal background checks, examining sanction lists, and identifying politically exposed persons (PEPs). These steps are in addition to customer identity verification, including proof of address, and creating a risk profile from the necessary secure identity verification documents.
Customer Due Diligence (CDD) — For AML CDD, your financial institution must take meaningful steps to determine the identity of both the named owners and beneficial owners of an account and the sources of the account’s funds. CDD also requires that any financial services institution determine the source of the funds and the expected use of those funds.
Ongoing Monitoring — Enhanced due diligence (EDD) requires your institution to continue monitoring customers after the initial onboarding process to confirm that their risk profile has not changed. Additional risk assessments are part of regular KYC checks.
KYC Process Best Practices
KYC can be complex and time-consuming if financial institutions do not have efficient practices. The following KYC process tips and best practices can help ensure smoother AML and KYC compliance.
Prioritize a Risk-Based Approach
An excellent way to prevent money laundering and other financial crimes is for your financial institution to implement a risk-based approach that identifies high-risk clients as well as suspicious activity.
Certain clients, including PEPs, foreign individuals, cash-intensive businesses, nonbank financial service companies and NGOs pose a much higher risk of these behaviors. Monitoring these clients more closely will lower the chances of financial impropriety.