Best practices for KYC compliance

What is AML KYC compliance?

KYC is an abbreviated version of Know Your Customer. It is basically an important function that helps assess the risk-bearing power of your customers and legal abiding to comply with the laws of Anti-Money Laundering. Best practices for KYC Compliance majorly revolve around knowing the identity of your customers, the risk they possess, and their overall financial activities.

Know Your Customer - KYC Requirements under AML regulations in UAE

AML Best practices for KYC Compliance

Being a business owner, it is essential for you to know your customer well. If you are a financial institution or designated non-financial business or profession (DNFBP), you might face possible sanctions, reputational damage, and fines upon professionally collaborating with terrorists or money launderers.

KYC is the essential control mechanism that protects your business enterprise from losses and fraudulent activities that might result from illegal transactions or funds.

A KYC is basically a systematic process that any financial institution or business enterprise undertakes. This systematic process includes the following steps.

The article revolves around the best practices you must follow in order to comply with the process of knowing your customer.

Characteristics of an effective and best practice for KYC Compliance

To build and run an effective AML KYC strategy, you require the following elements.

1. Customer Identification Program or CIP

The only reason why the KYC process is conducted is to identify the legitimacy and authenticity of your customers. One of the most essential elements for successful and Best practices for KYC Compliance is to assess the risk of your customers. This risk assessment should be carried out at an individual level as well as on an institutional level. The Best practices for KYC Compliance provide qualitative guidance to determine the accurate risk level and the policies to mitigate those levels of risks.

The minimum requirements needed for the opening of an individual financial account are somehow delimited in the process of the customer identification program. The data gathered includes:
The same information is then verified with the original source document by at least 2 independent verifiers to ensure accuracy and authenticity. The process of identity verification includes non-documentary and documentary methods like comparing all the information provided by the customer with the help of consumer reporting agencies and public databases, documentary method, or an intelligent combination of both.

The procedures mentioned above are considered the core of the Best practices for KYC Compliance because, unlike other Anti-money Laundering compliance methods, this stands solid and reliable. The procedures need to be codified and clarified in order to provide guidance to executives, staff, and many other benefits to the regulators.

However, it is crucial for you to note that the actual policies or procedures will depend upon the risk-based approach of the financial institution. There are a few factors that you can consider while framing the actual process or procedures.

2. Customer Due Diligence (CDD)

For every financial institution, the only thing that matters is to identify whether you can trust the potential client or not. Customer Due Diligence is basically a critical element that effectively manages your risks and protects your company against terrorists, politically exposed parties (PEPs), and criminals who might involve a heavy risk quotient with them.

Elements of the Customer Due Diligence Process
There are only three levels of customer due diligence.
Customer Due Diligence (CDD)
In order to enhance the effectiveness of your due diligence program, here are a few steps you can follow.
Enhanced Due Diligence measures under UAE AML Regulations

AML UAE will help you out in knowing your customers, both individuals or corporate houses, in terms of their risk profiles, nature of business, management, and ownership stakes so that you can remain compliant with UAE AML laws.

3. Ongoing monitoring

Monitoring your customers or potential customers once is not enough. You must develop an ongoing monitoring plan. The continuous monitoring function incorporates oversight of financial transactions and the thresholds developed to map the customer's risk profile.

Depending upon the risk profile of your customer, along with the risk mitigation strategies, you have to monitor a few additional factors.

Ongoing Monitoring

A business might be required to file a suspicious transaction report (STR) if the account's activities appear unusual.

The level of transaction monitoring depends on the risk-based assessment.

Corporate KYC for AML

Similar to individual accounts, corporate accounts also require KYC, identification, monitoring, and due diligence. The process of corporate account KYC is almost the same as of the individual KYC. However, the demands are different.

For corporate accounts, the volume of transactions increases along with the amounts per transaction, and several other risk factors are usually elevated, and hence more procedures are involved. These procedures are therefore known as Know Your Business (KYB).

Every jurisdiction has its own defined type of KYB requirements. However, there are four common steps that you can implement.

Corporate kyc

Retrieve the vitals of your company

Identify and verify the basic company information like registered number, address, name of the company, status, and the key management employees. On the other hand, it depends on your fraud prevention standards and jurisdiction when it comes to gathering specific information. You have to systematically collect all this information and cautiously feed it into your workflows.

Analyze the ownership structure

Identify the people who have ownership rights of the company through direct or indirect means. These can be individuals or a team of individuals.

Carry out AML/KYC checks

All the individuals you have identified as Ultimate Benefits Owners should undergo an AML or a KYC check.

Final words : AML KYC Best Practices

Knowing your customer is an integral part of your business. For businesses like auditors and accountants, lawyers, notaries, and other legal professionals, company and trust service providers, dealers in precious metals and stones (DPMS), real estate agents and brokers, the importance of AML KYC increases exponentially and should be performed thoroughly without a single casualty. Any error in the process can cause you qualitative as well as quantitative losses.

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FAQs About AML KYC Compliance

CDD verifies the information obtained from the customer to assess the overall risk associated with the customer. At the same time, EDD is level-up CDD when additional checks are performed for high-risk customers, such as establishing the legitimacy of the source of the customer’s funds and seeking management approval before transacting with the customer.
The basic requirements of KYC and CDD involve identification of the customer and their crucial information like nationality, contact details, address, business activities, the purpose of the transaction, etc., and verifying the authenticity of the information to determine the overall risk to the company from the particular customer, before onboarding the customer.

About the Author

Pathik Shah


Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.