KYC Check Is The Mandatory Process Of Identifying And Verifying The Client’s Identity: KYC Based Compliance Assignment, UoM, UK

Dec 11, 2023


Subject KYC Based Compliance

KYC means Know Your Customer and sometimes Know Your Client. KYC check is the mandatory process of identifying and verifying the client’s identity when opening an account and periodically over time. In other words, Financial Institutions (FIs) must make sure that their clients are genuinely who they claim to be.

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KYC standards are designed to protect financial institutions against fraud, corruption, money laundering, and terrorist financing. KYC involves several steps to: establish customer identity; understand the nature of customers’ activities; qualify that the source of funds is legitimate and assess “risk & return” from the client relationship.

Customer Due Diligence (CDD) is the process where pertinent information of a customer’s profile is collected and evaluated for potential money laundering or terrorist financing risks and evaluation of “Risk Vs Return”. This methodology is also known as the risk-based approach, which allows a FI to prioritize resources accordingly to areas that require more attention.

CDD aims at collecting data about customers’ identity and contact information as well as measuring their risk. Enhanced Due Diligence (EDD) is used for high-risk customers, aka those who are more likely to implement activities related to money laundering and terrorism financing due to the nature of their business or transactions.

In the world of Financial Crime Compliance (FCC), CDD & EDD are important and complex fields. It aims to uncover any potential risk to the financial institution of doing business with a specific organization or individual by analyzing information from a variety of sources.

Today, almost every online business needs KYC, CDD & EDD compliance, from forex exchanges, international trade to gambling operators or FIs.

However, performing KYC, CDD & EDD checks for every user is expensive, it adds friction to the customer relationship – and most importantly, it isn’t always enough to fight fraud.

The objective of KYC, CDD & EDD guidelines is to prevent banks from being used, by criminal elements for money laundering and terrorist financing activities. It also enables FIs to understand customers and their financial dealings to serve them better and manage risks prudently.

Many FIs deploy a fraud prevention system to augment AML solutions, filter out bad users pre-KYC check, trigger exceptions, reduce transaction fraud, eradicate defaulting customers, and grow your business safely, with complete peace of mind.

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