There are numerous KYC processes and requirements that financial institutions must adhere to in order to prevent money laundering. The following is a list of some of the most common KYC processes:
1. Customer Identification Process: Know Your Customer (KYC) Compliance process requires financial institutions to obtain and verify the customer's identity. In order to do this, institutions must collect information such as the customer's name, date of birth, address, and identification number.
2. Customer Due Diligence: This process requires financial institutions to gather information about the customer's financial history and transactions. Institutions must also assess the customer's risk in order to determine whether or not they pose a money laundering risk.
3. Enhanced Due Diligence: This process is used for customers who are deemed to be high-risk. Enhanced due diligence measures may include additional reporting requirements and/or more frequent monitoring of the customer's account activity.
4. Suspicious Activity Reporting: Financial institutions are required to report any suspicious activity that may be related to money laundering. Suspicious activity can include large or unusual transactions, attempts to conceal ownership or control of assets, and structuring transactions to avoid reporting requirements.
The ultimate aim of KYC is to confirm, with a high level of assurance, that customers are who they say they are and that they are not likely to be engaged in criminal activity. KYC is mandated for some organizations — primarily financial institutions — but for other businesses that voluntarily implement KYC procedures, it’s an important signal that the business is trustworthy and cares about protecting its customers.