Frequently Asked Questions

“KYC” stands for Know Your Customer. Scams and frauds online put companies at risk of operational, legal, and reputational risks, with devastating consequences for their bottom lines. KYC is a regulatory framework aimed at preventing such financial crimes, which may include money laundering and protecting banks, financial institutions and other organizations from fraud.

KYC requirements apply to regulated industries. There can be significant differences in the strictness of these requirements depending on the country in which you conduct business. KYC requirements between business entities entail:

  • Verify that the company is legitimate: does it really exist?
  • To determine the level of risk associated with engaging with the company, companies perform a due diligence examination
  • Accounts and business activities are constantly being monitored

KYC compliance is required by law everywhere. KYC compliance prevents flagged individuals from compromising the financial ecosystem, thus limiting criminals’ ability to launder their money. Your reputation and international credibility are also protected when you comply with KYC.

As part of KYC checklists, customer information is collected through customer identification programs (CIPs):

  • The full legal name of the customer
  • Customer’s digital photo to match with the ID document
  • Scanned ID documents such as identity cards, passports, and others
  • POA or proof of address from the utility bills, or bank statements
  • Ultimate beneficial owners (where needed) along with other identities checks
  • Screening against global blacklists such as PEP lists, sanctions, and other watchlists to identify the involvement in money laundering

In KYC, there are three main types of processes that evaluate the level of risk associated with an individual based on the due diligence performed. People with high exposure to PEPs for example may require a more intensive screening than normal account holders with low transactional levels. The three processes are:

  • Simplified Customer Due Diligence or CDD
  • Standard Due Diligence or SDD
  • Enhanced Due Diligence or EDD

Customer Due Diligence (CDD) checks are performed during the initial customer onboarding stage. A risk assessment identifies the potential risks posed by a customer. Due diligence of this level does not require a thorough screening. Since individuals are not classified as high or medium risk profiles, it is a very basic process.

In the case of public authorities or famous entities, Standard Due Diligence (SDD) is carried out. These customers are classified as low or medium risk. There are standards in every country and jurisdiction that outline when due diligence should be performed.

Enhanced Due Diligence (EDD) is a very thorough Know Your Customer (KYC) check for high-risk customers who are more likely to engage in money laundering, terrorist financing or other fraud-related activities. Businesses that operate within this criterion, who wish to avoid regulatory sanctions, should comply with Enhanced Due Diligence (EDD) requirements. 

CDD aims to collect data about customers’ identity and contact information as well as measure their risk. The main difference between due diligence and enhanced due diligence lies in the processes they cover. Due to their business nature or transactions, EDD is used for high-risk customers, that is, those who might be more susceptible to money laundering and terrorism financing activities.

EDD processes require additional information collected for higher-risk customers to provide a deeper understanding of customer activity to mitigate associated risks. Compliance checks will usually lookout for: 

  • Location of the business
  • Occupation or nature of business
  • Purpose of the business transactions
  • Expected pattern of activity in terms of transaction types, dollar volume, and frequency
  • Expected origination of payments and method of payment
  • Articles of incorporation, partnership agreements and business certificates
  • Identification of beneficial owners of an account or customer
  • Details of other personal and business relationships the customer maintains
  • Approximate salary or annual sales
  • AML policies and procedures in place
  • Third-party documentation
  • Local market reputation through review of media sources

The answer is yes –  if you handle accounts with high value or if you work with highly risky customers and counterparties. As part of EDD, it is recommended to identify a customer’s location, occupation, business profile, payment method, and business profile.

EDD requirements are becoming more and more extensive. In addition to the growing complexity of these due diligence procedures, technology is becoming increasingly capable of implementing them. Risk can successfully be managed and compliance can be maintained, thus enabling your business’s steady growth. The aim is to identify and integrate new processes that will benefit your business, clients, regulators, and keep everyone on track.

Make Compliance Your Priority

Steer clear of unknown risks

Investiga Risk Solutions offers KYC/AML risk solutions approved by local and international regulators. Your KYC/AML compliance is our priority. Contact our experts to learn more about our solutions.

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