The three main components of KYC (Know Your Customer) are:
This component involves verifying the identity of the customer or client. It requires collecting accurate and valid information about the customer’s identity, such as full name, date of birth, address, nationality, and identification documents like passports, driver’s licenses, or national ID cards. The goal is to establish the customer’s true identity and prevent identity theft or fraud.
Customer Due Diligence
Customer due diligence involves assessing the risk associated with a customer or client. This step includes understanding the customer’s background, financial activities, and the purpose of their transactions. Businesses need to determine if the customer’s profile matches their stated activities and assess whether there are any red flags or unusual behavior that could indicate potential money laundering, fraud, or other illegal activities.
Ongoing monitoring is an essential aspect of KYC. It involves continuously observing the customer’s activities and transactions to ensure they remain consistent with their established profile. If there are any changes or discrepancies, further investigation may be necessary. This component helps businesses detect and respond to any unusual or suspicious behavior over time.
These three components work together to help businesses establish a comprehensive understanding of their customers, assess risk, and ensure compliance with regulations aimed at preventing financial crimes such as money laundering, fraud, and terrorist financing.