What is a KYC check?
If you’ve spent any time looking at financial services, trading, real estate or insurance to name a few, you’ll have come across KYC and KYB checks. But what are they and why are they legal requirements?
Together, they are the process of identifying your client and their business and then verifying that they are who they say they are. This is a crucial step towards preventing financial crimes such as money laundering, funding terrorism and fraud.
What’s the difference between Know Your Customer (KYC) and Know Your Business (KYB) checks?
Know Your Customer checks focus on assessing the client’s risk and verifying that the client is who they say they are.
The first step is checking the authenticity of documents that give proof of identity and proof of address such as passport, driving license or ID card.
Then there’s Customer Due Diligence (CDD) which focuses on the risk level the customer poses by assessing their background and financial history. There are three levels of CDD depending on the services required by the customer and the risk level they pose.
- Simplified Due Diligence (SDD) when the risk of financial crime is low
- Basic Customer Due Diligence (CDD)
- Enhanced Due Diligence (EDD) which will include additional information for customers deemed high risk to provide a deeper understanding of customer activity
Know Your Business checks focus on the business in question to prevent bad actors being concealed when high-value transactions are conducted on their behalf.
Any financial institutions, payment companies or merchant acquirers who deal with money transfers are required to carry out KYB checks. This includes:
- Verifying the company registration number, name and address
- Verifying the identity of directors, Ultimate Beneficial Owners (UBOs) and shareholders with shares over 25%
- Screening the company and its owners against global watchlists and sanctions lists.
It’s important to remember that these are not a one-off checks – it’s an ongoing process with periodical reviews and is required by law. Unusual or suspicious activity may lead to a Suspicious Activity Report (SAR) being filed.
These checks may seem tedious but with the estimated amount of money laundered annually sitting at 2-5% of the global GDP (USD 800 billion – 2 trillion), it’s important to remember why these checks are in place.
If you would like to learn more about Fido Merchant Services, and how we can help your business take payments, please contact us:
Phone: +44 (0) 20 8039 4347
Email: [email protected]