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.
AML Best practices for KYC Compliance
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 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.
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.
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.
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.
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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About the Author
CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.