Know Your Customer (KYC) Checklist: A Comprehensive Guide

In this article:

1. Why is KYC important?
2. What is a KYC checklist for companies?
3. KYC checks: customer identification
4. KYC checks: customer due diligence
5. KYC checks: ongoing monitoring

Introduction to KYC

Know Your Customer (KYC) refers to the policies and procedures put in place by businesses to manage risk and verify the identities of customers from the initial onboarding stage, and through the entire customer lifecycle.

These policies and procedures (or a Know Your Customer Checklist) are particularly vital to regulated industries, ensuring compliance with national and international regulations targeting Anti-Money Laundering (AML), terrorism financing, fraud, and other forms of corruption and bribery.  

In the UK, compliance with KYC & AML regulations is monitored by a range of regulatory bodies and government agencies including the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), National Crime Agency (NCA) and HM Revenue and Customs (HMRC).

In today’s uncertain political and economic environment, it’s more important than ever that all regulated business, and particularly those operating in the banking and financial services markets, design and implement a KYC checklist approach to compliance. By leveraging Know Your Customer checks, businesses can streamline onboarding, continuous monitoring, and ensure real-time compliance with the evolving regulatory landscape.

Why is KYC important?

According to NASDAQ’s recent Global Scale of Financial Crime report, an estimated $3.1trillion in illicit funds flowed through the global financial system in 2023, with money laundering accounting for a large proportion of these funds.  Likewise, fraud scams and bank fraud schemes totalled $485.6B in projected losses globally.

59% of organisations expect financial crime levels to rise in 2024. In a world where the risk landscape is constantly evolving, it’s never been more important for businesses to build resilience.

An effective KYC AML checklist is the first step in identifying and verifying customers/clients and preventing the risk of unwittingly embarking upon a relationship with individuals or organisations involved in illegal activity.

It pays to be compliant – the cost of getting KYC wrong is high! According to data issued in January 2024, the value of penalties imposed on firms has surged by 57%, with penalties for non-compliance totalled $6.6 billion in 2023, up considerably from $4.2 billion in 2022 and $5.4 billion in 2021.

As well as preventing criminal activity and avoiding fines, getting KYC checks right is also key to understanding customer needs and preferences, establishing trust, providing superior service, and importantly reducing cost to acquire and serve customers.

What is a KYC checklist for companies?

The design and implementation of a comprehensive KYC checklist procedures are the foundation of best practice KYC compliance.  

A KYC checklist will vary across different industries and sectors, each of which will have varying risk levels associated with customer activities, as well as differences in term of the stringency of regulatory requirements.  

In all circumstances KYC checks must be clear, comprehensive, maintained and updated in line with all relevant jurisdictional regulatory requirements, and should encompass the entire customer lifecycle from customer identification, customer due diligence at onboarding stage, and ongoing monitoring.

Let’s explore each stage in more detail.

KYC Checks: Customer identification

Customer identification ensures regulated businesses can have confidence that the individuals and entities they are dealing with are who they claim to be.  

For individuals, these KYC checks typically involve the collection of distinguishing data from the customer including name, address, and date of birth. This will then be match against data sources such as credit or telco to find a match. Verification of a variety of official documentation (proof of address, photo identification, passport, driving license, employment information) can also be used for KYC where database checks aren’t valid or in data poor jurisdictions.

For entities, or producing a Know Your Client checklist, the process involves collecting and verifying a range of information and documentation, including company registration documents, business licenses, director information, proof of address, nature of business and ownership structure (ultimate beneficial owners, shareholders); as well as database searches for potential AML red flags such as sanctions and Politically Exposed Persons (PEPS) lists, and adverse media screening.  

It can be a complex and rigorous process, but a vital step in ensuring the integrity of the organisation and preventing financial crime.

KYC Checks: Customer Due Diligence (CDD)

Regulated businesses must carry out CDD measures when establishing a new business relationship, undertaking occasional transactions, when it suspects nefarious activity, or when it doubts the accuracy or adequacy of customer information.

When carrying out CDD measures a regulated business must verify the customer identity, identify and verify beneficial owners, understand the ownership and control structures, access and obtain information pursuant to the purpose and nature of the business relationship and build risk profiles based on an understanding of the nature and purpose of anticipated transactions.

In addition, for customers considered to be of high-risk, businesses should undertake Enhanced Due Diligence (EDD) - a risk-based approach to investigation and the gathering of more detailed intelligence.  High-risk customers might include, for example, those subject to economic sanctions or operating in countries without adequate AML controls, customers with complex ultimate beneficial ownership structures, companies managed by politically exposed persons (PEPs), businesses operating in countries with significant levels of corruption, criminal or terrorist activity. EDD measures include adverse media screening, obtaining additional identifying information, analysing the source of funds, scrutinising Ultimate Beneficial Ownership (UBO) and transaction screening.

KYC Checks: Ongoing Monitoring

Customer behaviour changes, and risk profiles evolve. Ongoing monitoring, or as it is often referred to Continuous Due Diligence, Ongoing Customer Due Diligence (OCDD) or Perpetual Due Diligence (PDD), refers to a risk-based in-life customer monitoring approach, based upon risk events and triggers to identify risk patterns, for maintaining KYC checks and monitoring customers for the risks they pose for AML and other financial crimes.

This involves monitoring and evaluating changes in customer profiles, business activities, ownership and organisation structures, legal status as well as sanctions and PEPs watchlists screening, adverse media screening, payment and transaction monitoring.

Need help with your KYC compliance checklist?

FullCircl goes beyond a standard know your customer requirements checklist. Using automated data collection, identity verification, data matching, execution of critical checks and watchlist screening, and adverse media monitoring, we assist regulated businesses to implement a best practice approach at every stage of the customer lifecycle - identify & acquire, verify & onboard, retain & grow.

FullCircl’s KYC capabilities deliver:

• Onboarding in seconds -  up to 94% faster through a low-code API integration and prepopulated onboarding forms
• Compliance with AML directives – develop a powerful compliance stack combining KYC software and AML services including PEPs, sanctions, and adverse media
• Agile customer verification - custom orchestration workflow, triggering different identity checks for different risk groups.
• Scalability - KYC verification designed to scale with your growth plans from 100 to 100,000+ customers per month.
• Ongoing monitoring - detect and respond to suspicious or unusual behaviour with routine re-screening of your customer base.
• Data powered by all major Credit Reference Agencies and global data sources for efficient identification and verification.
• Case management - a single customer view linking onboarding and monitoring in a real-time journey.

Enhance your KYC compliance checks - contact us today for a free demonstration.