What is KYC?
KYC stands for Know Your Customer and is the process whereby various companies make an effort to verify the identity of their clients before or during their dealings with one another. Verifying their identity will also help determine the suitability and risks involved in onboarding this ‘customer’. Essentially, KYC is ensuring your clients are actually who they claim to be.
Why do you need to ‘know your customer’ if they are providing business for your company?
KYC allows reporting entities to better understand their clients and their financial dealings, which helps manage the risks involved and ensures that the transaction is not being used to facilitate money laundering.
Once this KYC verification is complete, the company uses this information to determine how much of a risk onboarding their client is, and can compare them to people who are known for financial corruption. KYC has been increasingly adopted and supported by companies as it offers a layer of protection to ensure that they are in business with legitimate entities.
What is CDD?
CDD stands for Customer Due Diligence and has a very similar meaning to KYC, however CDD includes verifying the business in which the customer is involved. This is the New Zealand version of KYC.
Customer Due Diligence has a number of obligations to follow: customer identification, beneficial ownership, and business relationship.
Customer identification includes identifying customers by obtaining personal information such as their name, date of birth, photo ID and address through reliable sources.
Beneficial ownership or owners are required to be verified in line with the AML/CFT Act. A beneficial owner is a person or entity who satisfies at least one of the following elements:
- Owning more than 25% of the entity being verified
- Having effective control of the entity being verified
- The persons on whose behalf a transaction is conducted.
Business relationship means that after the identification of the customer and its beneficial ownership, the reporting entity must monitor the nature and purpose of the business relationship they are entering.
Why is KYC/CDD Important?
You may be wondering why these processes matter, as they just seem to add a whole lot of administrative tasks. However, these legislations are in place to protect vulnerable industries from financial crime. And so by completing the KYC/CDD process, you are confirming your honest intentions and ensuring safe conduct for the company you are engaging with.
First AML can help lighten the burden of this process by taking it off your hands completely. Let us guide you through KYC/CDD, and get in touch today.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.