A Know Your Customer checklist is an effective way for you to not only verify your customer’s identity but also get to know them a little bit better.
KYC procedures will slightly differ from business to business, as they do with various financial institutions and services. For example, a FinTech Know Your Customer procedure might differ slightly from one performed by a broker, due to them being different institutions. However, the process will still be more or less the same.
In this article, we will guide you through the process of creating your very own KYC checklist for your business.
What Is KYC Compliance?
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Financial and non-financial businesses alike must comply with KYC regulations. This goes in accordance with the statutory requirements, the required entities then create systems for customer identification and verify their clients.
Businesses benefit from KYC compliance by avoiding fines, preventing fraudulent activity, and reducing problems such as money laundering and terrorism financing.
KYC Checklist: Documents and Customer Identification
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In the KYC process, the first step is always customer identification. Now, for that, you’ll need an array of documents, the common ones typically include the following things.
- An ID with a photo
- Documentation of residence ( Utility bills and other official correspondence can be provided for this purpose)
- Passport
- Driver’s license
- Voter ID card
- Employee ID card
- University card
- Bank passbook with a photo
- Official letter from a public authority or a public servant
KYC Checklist: Working With Businesses
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Now, you’ll also need a KYC checklist for B2B transactions. After all, just like you need to know you’re customers, you need to be properly acquaintanced with your business partners too.
With that in mind, the information you’ll need for a B2B KYC checklist commonly includes the following.
- The registered company name
- The registered company address
- Type, nature, and status of business
- Name of the bank the business is registered with
- Company reference or registration number/ VAT number
- Company Branch
- Account number/ IBAN/ SWIFT code
- Confirmation of the identity of directors
- Ownership structure chart of the company
- Certificate of memorandum/ incorporation
- Annual audited report/ statements/ financial accounts
- Articles of association
Know Your Customer Procedures
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An organized KYC checklist program consists of three parts: customer identification program (CIP), customer due diligence (CDD), and ongoing transaction monitoring.
Customer Identification Program (CIP)
So, how does a customer identification program work? Well, a customer identification program is there to confirm the customer’s identity and ascertain that their funds come from genuine sources. The process begins when the customer attempts to open an account.
Without this program, fraudsters will have no trouble using your business to conceal the cash they have stolen.
For individuals and businesses alike, the CIP typically happens during the customer onboarding procedure. This procedure is required to include the following:
- A written document of the program
- Customer name, date of birth, address, and official identification numbers
- Identity verification procedures
- Record keeping
- Comparison with available government lists
- Customer notice of the following steps to take
With that in mind, it’s the responsibility of your business to ensure that all the customer information provided is legitimate.
Additionally, employing security measures like multi-factor authentication and biometrics when allowing your customers to open and access accounts online is critical to ensuring that users are who they say they are.
Customers’ funds must also be traced back to their original source, and high-risk sources like cash enterprises, politically exposed people, and overseas individuals must be properly monitored. Additionally, you must identify an organization’s ultimate beneficial owners and comprehend the nature of their commercial relations with the business. All of this is crucial to KYC and anti-money laundering regulations.
Customer Due Diligence (CDD)
Businesses are required to create and maintain written policies, and, as such, those policies should enable certain things.
- Identification and verification of customer identity
- Identification and verification of beneficial owners of new customers
- Development of customer risk profiles
- Ongoing monitoring for the sake of identifying and reporting suspicious transactions, and performing risk assessment to maintain and update the customer information
This phase is rather delicate due to the nature of it. After all, customers will need to be checked for criminal or suspicious behavior. This determines the risk level and lets you know whether or not you can trust them.
Certain businesses and individuals that are generally considered high-risk can include money service businesses, cash incentive businesses, nonresident aliens, foreigners, and politically exposed persons. Additionally, to keep an eye on people with criminal backgrounds, you should also check official sanctions listings.
It’s important to note that CDD can differ from case to case. With that being said, you can determine customer risk using one of these methods:
- Simplified due diligence: In cases of low-risk customers, you can simply verify them with an ID check.
- Standard due diligence: For this one, you can check the customer’s ID and then also verify their identity by using some government database
- Enhanced due diligence: With high-risk clients, verification and identification get a bit more complex. Along with ongoing monitoring, their fund sources, business relationships, and transaction purposes should all be checked.
Ongoing Monitoring
Ongoing monitoring is essential for determining whether your customers are someone you want to do business with.
A good strategy for detecting risk should be a part of your continual monitoring. Despite the fact that your high-risk clients might be conducting their business in a perfectly lawful manner, anti-money laundering requirements demand that you treat them differently.
However, that doesn’t mean that low-risk clients are a safe bet either, since some of them can still turn out to be financial criminals. Despite that, enhanced due diligence can’t be performed on everyone, since it can create a negative and taxing customer experience.