Know Your Customer (KYC)
In an increasingly global economy, financial institutions are more vulnerable to illicit criminal activities. KYC standards are designed to protect financial institutions against fraud, corruption, money laundering and terrorist financing.
What is KYC?
KYC is a set of standards and processes to help institutions mitigate financial crime risk across the customer lifecycle.
- Establish customer identity
- Understand the nature of the customer’s activities and qualify the legitimacy of source of funds
- Assess money laundering risks associated with the customer
Why KYC?
Effective KYC processes are the backbone of any successful compliance and risk management programme, and demands are intensifying. As more stringent anti-money laundering (AML)and KYC requirements come into force, banks and corporates are dedicating significant resources and time to KYC compliance. Core components include customer due diligence (CDD), screening and ongoing monitoring.
Meet regulations
Comply with AML/CFT rules, FATF recommendations and local law.
Reduce financial crime
Mitigate fraud, identity theft, sanctions evasion and other risks.
Protect reputation and trust
Demonstrate responsible practices to customers, partners and regulators.
Enable risk-based onboarding
Clear risk classification supports faster, safer customer journeys.
Support cross-border business
Meet correspondent and multi‑jurisdictional expectations.
Improve data quality
Better decisions through accurate, current customer information.
Customer Due Diligence (CDD)
CDD is the process of identifying and verifying customers, understanding the purpose and intended nature of the relationship, and assessing risk on a risk‑based basis. It typically covers identity verification, beneficial ownership, sanctions/PEP/adverse media screening, and understanding source of funds/wealth as appropriate. CDD is not a one‑off step: risk should be kept current through ongoing monitoring, periodic reviews and trigger‑event refreshes.
Enhanced due diligence (EDD) is applied where higher risks are identified, requiring deeper verification and senior approvals. Simplified measures may be used for demonstrably lower‑risk scenarios, consistent with law and guidance. Strong documentation and audit trails evidence decisions and enable effective oversight.
CDD levels: SDD, Standard(CDD), EDD
Simplified due diligence (SDD) applies to demonstrably lower‑risk relationships. Collect fewer attributes and perform lighter verification, while keeping ongoing monitoring and escalation paths.
Standard due diligence is the default for most customers: verify identity and beneficial ownership, screen for sanctions/PEPs/adverse media, and record risk classification and expected activity.
Enhanced due diligence (EDD) is for higher‑risk cases (e.g., PEPs, high‑risk jurisdictions, complex ownership): obtain independent corroboration, deeper SOF/SOW, extra documents and senior approvals, with more frequent reviews.
Challenges and standardisation
Although banks and regulators are moving towards more standardised KYC requirements and aligned internal processes, there is still a way to go. Multiple global and local initiatives have come and gone. Overcoming these challenges requires a proactive, collaborative approach to cultivate change.
KYC compliance plays a critical role in real-time, cross-border payments by fostering trust, transparency and collaboration while mitigating risk. A community approach is essential to accelerate compliance and create more collaborative ways to address financial crime.
Need Professional KYC Services?
Our compliance experts can help you navigate the complexities of KYC requirements and implement effective processes for your organization.
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