Know your customer
Know Your Customer (or 'KYC') is the due diligence and bank regulation that United States financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. Typically, KYC is a policy implemented to conform to a customer identification program mandated under the Bank Secrecy Act. Know your customer policies have becoming increasingly important globally to prevent identity theft fraud, money laundering and terrorist financing. In a simple form these rules may equate to answering twelve questions albeit this is the tip of the iceberg and regulators now expect much more. KYC should not be thought of as a format to be filled - it is a process to be undergone from the start of a customer relationship to the end.
One aspect of KYC checking is to verify that the customer is not on any list of known or suspected fraudsters, terrorists or money launderers such as the Office of Foreign Assets Control's SDN list. This list typically contains thousands of entries that is updated monthly or more often. Beyond sanctions lists are the lists of third party vendors that track links between persons regarded as high-risk owing to negative reports in the media about them or in public records.
Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against their recorded profile, history on the customers account(s) and with peers.
Banks do KYC monitoring for AML/CFT purposes increasingly uses specialised transaction monitoring software - both names analysis software and trend monitoring software. The alerts identify unusual activity which then needs to be subject to due diligence/ enhanced due diligence processes that use internal and external sources of information including the internet. This helps to conclude whether a transaction/activity is suspicious and requires Suspicious Activity Reporting (SAR filing) to the Financial Intelligence Unit (FIU for example the US FinCEN) under the laws of the land.
KYC has different connotations and the definition above is from an AML/CFT perspective.
External link
KYC "Bad Guy Databases"
- World-Check.com - The leading KYC compliance database of Heightened Risk People and Entities - PEPs, Terrorists, others
- Factiva Public Figures and Associates - A PEP KYC database
- IntegrascreenOnline - Another key KYC database vendor
Others