The frequency of conducting a Know Your Customer (KYC) data review depends on various factors, including regulatory requirements, the nature of the business relationship, and the risk associated with the customer. KYC is a critical component of anti-money laundering (AML) and counter-terrorist financing efforts, and its purpose is to ensure that businesses can identify and verify the identity of their customers.
Regulatory authorities often set guidelines for the frequency of KYC reviews, and businesses are required to comply with these regulations. In many jurisdictions, the frequency of reviews may depend on the risk profile of the customer, with high-risk customers potentially requiring more frequent reviews compared to low-risk customers.
Typically, businesses conduct initial KYC checks when establishing a new customer relationship. Subsequent reviews are then conducted periodically. The frequency of these reviews can vary, but it’s common for businesses to perform KYC data reviews annually or at intervals determined by the risk assessment of the customer.
It’s essential for businesses to stay informed about changes in regulations and adjust their KYC processes accordingly. Additionally, if there are significant changes in a customer’s profile or behaviour, businesses may need to conduct ad-hoc reviews to ensure that the information is up to date.
What does a KYC check involve?
The exact steps and documentation required can vary by jurisdiction and industry, but generally, a KYC check involves the following:
- Customer identification: Collecting basic information about the customer, such as name, date of birth, address, and official identification numbers (e.g., passport, driver’s licence, or national ID).
- Verification of identity: Verifying the provided information through reliable and independent sources. This may involve checking government databases, public records, or using electronic identity verification services.
- Risk assessment: Assessing the risk associated with a particular customer based on factors such as their business activities, transaction history, and geographic location. This step helps in determining the level of scrutiny and monitoring required for that customer.
- Customer Due Diligence (CDD): Conducting a deeper analysis of the customer’s background, source of funds, and purpose of the business relationship. This is especially important for high-risk customers.
- Ongoing monitoring: Regularly monitoring customer accounts and transactions to detect and report any suspicious activity. This involves keeping customer information up to date and reevaluating the risk profile periodically.
- Sanctions screening: Checking customers against government-issued sanctions lists to ensure they are not involved in prohibited activities or individuals/entities.
- Politically Exposed Persons (PEP) Screening: Identifying whether a customer is a politically exposed person, as these individuals may pose a higher risk due to their potential involvement in corruption or other illicit activities.
- Record keeping: Maintaining comprehensive records of all KYC checks and related documentation. This is important for audit purposes and regulatory compliance.
KYC checks are not a one-time process; they are typically conducted when a new customer relationship is established and are periodically updated, especially for high-risk customers..
The specific frequency of KYC data reviews depends on regulatory requirements, risk assessments, and changes in the customer’s profile or behaviour. It’s crucial for businesses to establish a systematic and risk-based approach to KYC reviews to comply with regulations and mitigate financial and reputational risks, and to stay informed about changes in regulations and continuously improve their processes to address emerging risks in the financial landscape.