Customer-Due-Diligence

Financial organizations employ the process of customer due diligence to gather and assess pertinent data about current and prospective clients.

By analyzing data from many sources, it seeks to identify any possible risks to the financial institution associated with doing business with a certain organization or person. These consist of:

  • Client Identity details to transact with the financial institution
  • Verification processes with publicized sanctions list by governments or territories
  • PIP sanction verification of public data, such as corporate listings
  • Identity Verification of private third-party data sources

Meeting Know Your Customer (KYC) criteria entails doing extensive customer due diligence. These differ significantly from one market or nation to another. There must be a variety of facts gathered for due diligence. Basic client due diligence entails gathering details on a customer’s identity, from their corporate address to the identities of their executives, their business operations and the marketplaces in which they operate, as well as the other entities with whom they do business. The risk profile of the consumer, or how probable it is that they will engage in behaviors that put financial institutions at risk.

What justifies the banking industry’s importance of Customer due diligence?

Financial institutions invest time and effort to “know their consumers” for a variety of reasons, including:

  • To prevent fraudulent conduct, such as identity fraud or impersonation
  • Make sure the business complies with the rules and laws of the areas or markets in which it operates.
  • To assist confirm the consumer is indeed who they claim to be.
  • The financial institution’s ability to support law enforcement

A risk-based approach

Financial firms are required to approach client due diligence using a risk-based strategy by several international KYC regulations. Customers who may represent a higher risk will thus be subject to stricter due diligence procedures. Depending on the nature of the customer’s connection with the bank and their risk profile, different degrees of due diligence will be used.

The primary dangers that customer due diligence seeks to reduce are as follows:

Performing due diligence isn’t just for prospective clients.

Client due diligence is never finished. Even when a new client joins a financial institution, it continues. The reason for this is that a customer’s actions might change, which could impact their risk profile.

As part of their continued due diligence process, financial institutions also monitor and analyse the transactions of their clients.

How do you use KYC checks to comply?

The KYC process of collecting data and information to confirm customers’ identities includes Enhanced Due Diligence (EDD), which adds extra information needed to reduce the risk associated with the client. Regular KYC policies and KYC due diligence rules differ in several ways. EDD regulations are seen to be “rigorous and robust,” which means that much more proof and thorough data must be gathered. Regulators should have rapid access to the data and detailed documentation of the whole KYC Due Diligence process. The analysis of customer data frequently involves the hiring of professionals, therefore the accuracy of the information sources is crucial.

When determining a KYC risk rating, KYC Due Diligence also has to have “reasonable certainty.” This means that the experts who are in charge of making a choice must have carried out all required research stages and used professional expertise and care in coming to their conclusion.

Last but not least, KYC Enhanced Due Diligence additionally considers all pertinent negative information. Any information relating to money laundering or corruption, whether it be an official document or anything made publicly available online, must be carefully evaluated. There is no tolerance for laxity and no risks should ever be accepted when customers or transactions are significant enough to merit KYC Due Diligence.

It is crucial to remember that EDD also adheres to the same criteria as typical KYC processes. Any suspicious behaviour is always reported to the authorities via a suspicious activity report by a firm or organisation. Additionally, continuous monitoring is always necessary, and compliance software use is strongly advised.

IDcentral’s KYC Verification system outlines common criteria for data collecting and administration to offer bank clients a safe and secure platform to verify customer data.

To facilitate the screening of entities against sanctions, PEPS, and negative media, IDcentral offers CTF screening services.

Banks can keep an eye on the possibility of penalties on cross-border transfers thanks to IDcentral’s AML screening services.

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