Steps Involved In Know Your Customer Procedures From Harlem And Beyond

April 19, 2024

A Know Your Customer (KYC) process is one of the non-negotiable requirements for anti-money laundering (AML), and it comprises the main parts of the AML compliance measures utilized by financial institutions and other regulated entities.

Customers’ KYC isa procedure that requires proof of identity and consideration of the risks that their activities involve.

Here’s an overview of the typical steps involved in KYC procedures:

Customer Identification: The initial phase of the KYC includes gathering and verifying sufficient information to identify customers and determine their true identity. Usually, this involves acquiring official documents that satisfy the following identification explanations as the case maybe: government-issued IDs, passports, driver’s licenses, or any legally recognized identification document. Furthermore, the person’s auxiliary information may also be obtained, including name, date of birth, address, and occupation. Customer identification is also a crucial step in AML compliance policies.


Customer Due Diligence (CDD): Then, CDD proceeds to gather the customer’s detailed information, answering questions like who you are, what you do, and what you will receive the services from the institution for. This phase determines the customers’ banking activities, risk rating, and likelihood of money laundering or terrorism financing. EDD may be a mechanism for dealing with higher-risk customers such as PEPs and customers from jurisdictions with highrisks.

Risk Assessment: Institutions must conduct risk assessments to assess how high each client can get. Considerations such as the purpose of the business, the customer’s geographical location, the frequency of their transaction, and other relevant factors are all taken into account to determine the risk level. This audit helps estimate what shopping basket configuration is required for a customer.

Ongoing Monitoring: In the context of KYC, the procedures are not a single event but call for continuous monitoring of all customer transactions and activities. A monitoring framework will help reveal any uncommon or suspicious behavior that might be signs of money laundering or other malicious conduct. Automated monitoring systems, transaction monitoring tools, and security reviews are state-of-the-art techniques frequently used for countering money laundering.


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Record-Keeping: As for financial institutions, keeping records that are accurate regarding customer data, account transactions, and validation processes is a must. Such registers shall be kept for a certain amount of time according to the period prescribed by the relevant regulatory bodies. Correct documents serve as a basis for the audit execution; furthermore, they are evidence of conformance with political requirements or laws.

Reporting Suspicious Activities: The KYC process may detect suspicious transactions and activities while monitoring. Relevant authorities must be informed of this information in such cases. This is done by filing SARs or any other reports required by the regulator to identify this kind of activity and report it to the authorities.

Final Thoughts

The KYC procedures are one of the significant factors in the risk management of financial crime and in meeting AML regulations that probe the financial systems. Financial institutions can curb the money laundering phenomenon and strengthen the financial system through the personal identification of customers, risk screening, and monitoring of customers’ movements.

Photo credit: HWM.


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