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Know Your Customer

Know Your Customer (KYC) is the process of a business verifying the identity of its clients. The term is also used to refer to the bank regulation, which governs these activities. Know your customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed Agents, Consultants, Introducers, Partners or Distributors are anti-bribery compliant.

Banks, insurers and export creditors are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.

Know your customer policies are becoming much more important globally to prevent identity theft, financial fraud, money laundering and terrorist financing.


The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. Related procedures also enable banks to better understand their customers and their financial dealings. This helps them manage their risks prudently. Banks usually frame their KYC policies incorporating the following four key elements:

  • Customer Policy

  • Customer Identification Procedures

  • Monitoring of Transactions

  • Risk management

For the purposes of a KYC policy, a Customer/user may be defined as:

  • a person or entity that maintains an account and/or has a business relationship with the bank;

  • one on whose behalf the account is maintained (i.e. the beneficial owner);

  • beneficiaries of transactions conducted by professional intermediaries such as stockbrokers, Chartered
    Accountants, or solicitors, as permitted under the law; or

  • any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, for example, a wire transfer or issue of a high-value demand draft as a single transaction.

Typical Controls

KYC controls typically include the following:

  • Collection and analysis of basic identity information (referred to in US regulations and practice as a “Customer Identification Program” or CIP)

  • Name matching against lists of known parties (such as “politically exposed person” or PEP)

  • Determination of the customer’s risk in terms of propensity to commit money laundering, terrorist finance, or identity theft

  • Creation of an expectation of a customer’s transactional behavior

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