Know your customer ( KYC ) et principes de vigilance

In any relationship with a customer, financial institutions must take steps to verify the identity of their customer and the nature of their business.

What is Customer Due Diligence (CDD)?

The exercise of customer due diligence (CDD) is one of the most important components of any AML/CFT regime. In order to identify and address money laundering and terrorist financing risks , companies must be able to establish that their customers are who they say they are and that they have been transparent about the nature of their activities. Customer due diligence, sometimes referred to as  » Know Your Customer » ( KYC), is a background check process conducted in accordance with the law and based on the level of risk presented by the customer.

Customer Due Diligence Basics

Customer due diligence, at its most basic level, involves verifying the identity of a customer and the business in which they are involved , to a sufficient level of confidence. This process involves a number of regulatory obligations:

• Customer Identification: Businesses should identify their customers by obtaining personal information, including name, photo ID, address, and birth certificate, from a trusted, independent source.
• Beneficial ownership: Due diligence measures should identify the beneficial ownership of a company in cases where it is not the customer. Identifying beneficial ownership should include understanding the company’s control structure.
• Business relationship: After having identified the customer and the beneficial owner, companies must also obtain information on the nature of the business relationship they are entering into and its purpose.

When is the CDD compulsory?

Financial institutions must take KYC and CDD measures under the following circumstances:

• New business relationship: Before establishing a business relationship, companies should take due diligence steps to ensure that the customer matches their risk profile and is not using a false identity.
• Occasional transactions: Certain occasional transactions justify CDD measures. These may be sums of money above a certain threshold or entities in high-risk foreign countries.
• Suspicion of Money Laundering: If a customer is suspected of money laundering or terrorist financing, companies must implement CDD checks.
• Unreliable Documentation: Where identification documents provided by customers are unreliable or inadequate, companies should conduct further investigation of the CDD.

Risk-based approach: KYC and CDD measures should be risk-based. Firms should assess the AML/CFT risk posed by each customer and adapt their due diligence accordingly. The majority of customers will be subject to standard CDD measures which require customer identification and verification, as well as an assessment of the business relationship. In lower-risk scenarios, simplified due diligence may be appropriate, requiring only customer identification and no verification.

What is Enhanced Due Diligence (EDD)?

Some customers, such as Politically Exposed Persons ( PEPs), present a much higher risk of money laundering and therefore require enhanced CDD measures, which may involve

• Obtaining additional identification documents for customers
• Establish source of funds or wealth
• Further examination of the nature of the business relationship or the subject of a transaction

Implementation of permanent control procedures

What is continuous monitoring?

Ongoing monitoring refers to the ongoing review of business relationships. This process is important because, while occasional transactions may not initially be suspicious, they may become part of a pattern of behavior over an extended period of time that reveals a change in a risk profile or business relationship. Ongoing monitoring involves:

• Monitor transactions throughout a business relationship to ensure that a client’s risk profile matches their behavior.
• Maintain responsiveness to any change in the risk profile or to any factor that may raise suspicion.
• Retain relevant records, documents, data and information that may be necessary for CDD purposes.

Ongoing monitoring should apply to all business relationships but, like other CDD measures, it can be tailored to reflect the client’s risk profile.

Technology and Expertise

Effective CDD and KYC measures rely on a combination of technology and expertise. As risk profiles and criminal threats evolve, financial institutions must be prepared to be as flexible and innovative in their approach to CDD as in any other aspect of their AML/CFT policy. While technology provides useful tools to facilitate CDD processes, human vigilance remains essential to spot and deal with new threats.

Start now

Identify risks before they become threats and protect your business. Sift through the only dynamic global database of sanctions and watchlists, PEPs and unwanted media, in consolidated and structured profiles.

Learn more