Know your customer (KYC) is the process used by a business to verify the identity of their clients. The term is also used to refer to the bank regulation which governs these activities. A Customer Identification Program (CIP) is a United States requirement, where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them and is a provision of the USA Patriot Act.
In Mexico, the Ley Anti Lavado de Dinero, http://bit.ly/1G3Os10, requires financial institutions to implement reasonable procedures to verify the identity of any person seeking to open an account, to the extent reasonable and practicable records of the information used to verify the person’s true identity; and determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.
The Essential elements of any KYC solution include:
- Customer Acceptance Policy –Must be clear, with explicit criteria. Perform due diligence with background checks to ensure that customer/entity is using their real name and not involved in terrorism or other illegal activities.
- Customer Identification Procedures—Must be clearly outlined for and performed at every stage of the banking relationship: establishing an account, carrying out a transaction, resolving doubts about the authenticity of previously obtained identification, etc. Identify and verify all customers’ identities and purposes (using reliable, independent data, information, and/or source documents) to the bank’s satisfaction. Identificar y conocer a los clientes y usuarios, proteger información, visitas de verificaciones.
- Monitoring of Transactions—Effective KYC procedures require continuous monitoring of your customer base and its normal behavior to reduce risk. High-risk accounts (classified based on country of origin, fund sources, etc.) or activities (such as complex or unusually large transactions and those with no visible lawful purposes) should undergo extra scrutiny. Banks can set thresholds for transaction amounts that warrant enhanced due diligence.
- Integrate with Risk Management—All banks and other financial institutions should establish internal audit and compliance functions to ensure adherence with Know Your Customer guidelines; this includes establishing a company-wide training program regarding policies and procedures. Responsibility for these functions should be explicitly outlined and allocated within the bank–taking into account segregation of duties, and management oversight is essential. Accounts should be subject to risk categorization, and banks may create risk profiles with accompanying procedures for each category.
Call to Action:
1. Streetscore makes it easier and more affordable for you to comply with Know Your Customer regulations, while significantly decreasing your organization’s risk of becoming accidentally involved in money laundering and illegal activity.
2. Streetscore’s risk-based realtime AML capabilities go way beyond basic checks by searching against the most important and up-to-date global watch lists, hundreds of government websites, thousands of news sources and more. Our proprietary algorithms minimize false negatives and protect against risk.