Most businesses today will be aware of the importance of verifying that their customers really are who they claim to be. And, at a time when online fraud and money laundering is on the increase, this is more important than ever.
But it’s not simply a matter of protecting your organisation. It’s also a legal requirement that customers, whether individuals or businesses, are thoroughly vetted to ensure that they are legitimate and are who they say they are.
There are several standard checks involved in the KYC process.
Essentially, when dealing with businesses they include an investigation into company data and the senior executives, the beneficial owners and directors of the organisation as well as ensuring the company is not currently sanctioned or on any watchlists.
For individuals it’s a little more straightforward. In this case and at the most basic level, it is simply a matter of confirming their identity (i.e. name, address, date of birth) and where they live. These are commonly known as ID Checks, ID verification, KYC checks and ID proofing.
There are many KYC providers but choosing a holistic fraud and ID provider such as TransUnion can provide added value with TruValidate which dig deeper and uses other sources of data to back up your knowledge of the customer in question.
Apart from the fact that knowing who a customer is will mean that you can deal with them in good faith, it is also a legal requirement that all due diligence is carried out.
There is also a clear legal requirement for carrying out KYC checks with extensive guidance provide by the government.
The primary purpose of KYC is ensuring that the individual in question is not involved in money laundering, funding terrorism or other illegal activities.
Failure to check won’t just risk unwittingly supporting any or all of these activities, it can also make your own business liable to prosecution, fines and other sanctions.
Across the world, governments and other agencies like the FBI and Interpol have drawn up watch-lists specifying individuals, groups and other organisations they consider need close surveillance for financial, legal or political reasons.
Checking these need specialist search skills of a number of databases, the sort of searches that TransUnion can provide on your behalf.
Another check is whether customers are classed as being politically exposed persons, or PEPs as they are generally known. These are individuals who are in a prominent public position such as a politician or member of the armed forces or has close links with someone who is.
While there is no suggestion that these individuals are untrustworthy in any way, their position may make them more vulnerable – and therefore a greater potential risk.
There is often some confusion about the ways that Know Your Customer (KYC) and Customer Due Diligence (CDD) relate to each other. The differentiation is quite simple.
KYC checks are made at the start of the business relationship by way of making background checks.
While using the right systems can make these very accurate, they’re not fool proof. So the ongoing process of CDD is also necessary, especially in identifying if money laundering is suspected. Therefore, this is more a question of examining the transactions themselves to confirm where the funds are coming from and also where they are going.
While this short article has given a quick overview of the subject, there is a great deal more to explain about KYC, CDD and anti-money laundering protection in general.
At TransUnion we advise many different businesses in the financial sector and beyond and would be happy to help you too. If you think this may be useful, simply contact us today and we will be in touch soon.