Know Your Customer (KYC)

Know your customer policies have becoming increasingly important globally to prevent identity theft fraud, money laundering and terrorist financing. In a simple form these rules may equate to answering twelve questions, but this is the tip of the iceberg and regulators now expect much more. KYC should not be thought of as a format to be filled - it is a process to be undergone from the start of a customer relationship to the end.

One aspect of KYC checking is to verify that the customer is not on any list of known fraudsters, terrorists or money launderers, such as the Office of Foreign Assets Control's Specially Designated Nationals list. This list contains thousands of entries that is updated at least monthly. As well as sanctions lists there are lists of third party vendors that track links between persons regarded as high-risk owing to negative reports in the media about them or in public records.

Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against their recorded profile, history on the customers account(s) and with peers.

Banks doing KYC monitoring for anti-money laundering (AML) and Counter-Terrorism Financing (CTF) purposes increasingly use specialised transaction monitoring software, particularly names analysis software and trend monitoring software. The generated alerts identify unusual activity which is then subject to due diligence or enhanced due diligence (EDD) processes that use internal and external sources of information on the subject, including the internet. This helps to determine whether a transaction or activity is suspicious and requires reporting to the authorities. In the US it would require Suspicious Activity Reporting (SAR) filing to Financial Crimes Enforcement Network (FinCEN). In the UK it would require a report to Serious Organised Crime Agency (SOCA).

KYC has different connotations and the definition above is from an AML CTF perspective.

Know Your Customer processes are also employed by regular companies of all sizes, for the purpose of ensuring their proposed agents, consultants or distributors anti-bribery compliance. Banks, insurers and export credit agencies are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.

Specialists consultancies such as Capital Conservator Treasury Services (UY) help multinational companies and SMEs conduct Know Your Customer processes when entering new markets.

Source: From Wikipedia, the free encyclopedia