Know your customer (KYC)

In today’s global economy, it has never been so important for all manner of businesses to implement the policies and procedures that will enable them to manage risks.  A key element of such risk management for organisations will be verifying that their customers, clients, and suppliers are truly who they claim they are. This process is known as 'know your customer' due diligence. 

By carrying out such verification to stringent standards, financial institutions and other businesses can make sure they are doing everything reasonably possible to guard themselves against the risk of illegal activities, such as fraud or money laundering. This, in turn, will provide vital protection for companies and clients alike. 

The benefits of an effective ‘know your customer’ process

Businesses such as banks, insurance companies, investment firms, cryptocurrency exchanges, online payment processors, and fintech companies all stand to benefit when robust ‘know your customer’ procedures are in place. 

Gaining in sophistication all the time, today’s cutting-edge KYC processes bring advantages such as: 

  • Rapid availability: typically, a new customer can expect to gain access to their requested products or services immediately after a successful KYC check. 
  • Accessibility from anywhere, at any time: drawing upon automated remote solutions, customers can undergo KYC verification from almost any location on the planet.
  • Regulatory compliance: our present age is one in which a wide range of legislation addresses KYC. With KYC processes tending to be modular, additional security checks can be implemented to further ensure businesses stay on the right side of the law. 
  • Cost-efficiency: with artificial intelligence (AI)-driven and automated solutions now existing for KYC, a company doesn’t need to commit to a massive outlay in order to verify and acquire trustworthy and lucrative new customers. 

The three major components of ‘know your customer’ 

Below are the three pillars of ‘know your customer’ – which, together, provide the elements needed for a fully effective KYC system:  

  • A Customer Identification Program (CIP), requires all customers, both individuals and corporations, to undergo identity verification.  
  • Customer Due Diligence (CDD), which entails the gathering of further customer data, so that a risk profile can be established. 
  • Continuous monitoring, which underscores that one-off checks are not sufficient for watertight ongoing KYC; the regular checking of customer activity and status throughout the relationship is crucial, too. 

Best practice guidelines for the implementation of ‘know your customer’ in business 

The below cannot be regarded as an exhaustive rundown of the steps that will need to be taken in the construction of your business’s KYC systems. 

However, they will help ensure your organisation puts in place stringent procedures that greatly minimise the likelihood of financial crimes such as money laundering, fraud, and terrorist financing: 

  • Embrace a risk-based approach: this refers to the practice of businesses assessing the risk that each customer or transaction represents, and adapting their KYC procedures in line with this. 
  • Check customer names against sanctions lists: Governments and international organisations issue these. Your business can make good use of sanctions lists to minimise the likelihood of engaging with people or entities with links to criminal or terrorist activities. 
  • Be robust with recordkeeping: for compliance and audits, organisations and institutions should maintain accurate and comprehensive records in relation to KYC processes and customer interactions. 
  • Provide regular training and awareness education to staff members: the personnel of an organisation that introduces KYC processes should be kept informed about the latest KYC requirements and financial regulations. After all, a company’s KYC system will only ever be as effective as the employees who oversee it. 

There will always be sizeable challenges involved in the process of implementing an effective ‘know your customer’ system. These will include – but will not be limited to – the need to keep on top of constantly changing KYC-related regulations around the globe, as well as the potentially expensive investment in technology, training, and personnel that may be required. 

As advanced technologies such as AI and machine learning come into play, it may become easier over time to quickly overcome these challenges, though.


In the meantime, to find out more about the UK and international credit reports and anti-money laundering (AML) searches that we will enable you to take advantage of at Creditserve, please don’t hesitate to browse our site or contact us directly.