Financial institutions, investment service companies, insurers, and creditors are generally required to implement and adhere to know-your-customer (KYC) policies as part of a larger anti-money laundering (AML) strategy. Although most other nonregulated organizations are not required to have a KYC policy, such procedures can prevent fraud and serious financial losses caused by criminal conduct. Furthermore, adhering to KYC guidelines demonstrates to customers, vendors, and other stakeholders that you prioritize trust and security.
Due Diligence Requirements
Regulated organizations must perform three duties as part of their KYC processes: customer due diligence, improved due diligence, and continuous monitoring. This means that they verify customers’ identities, residences, and dates of birth and compare them to lists of convicted criminals. In addition, they investigate transaction trends and high-risk accounts to determine their threat level and, when needed, file suspicious activity reports with the government.
Enhanced due diligence processes go deeper. For example, a bank may pay careful attention to high-transaction-value accounts or accounts dealing with risky activities or countries.
Export companies subject to KYC regulations must take care not to sell to customers who are on federal government lists, including those who have been denied export privileges. Exporters must also review any customer information they receive for potential violations.
Antifraud and Marketing Advantages
Even if you don’t work in finance or sell products internationally, understanding your customers is beneficial. Routine credit checks on major customers, for example, may keep your company from falling victim to “phoenix” schemes, in which organizations try to profit from bankruptcy.
Furthermore, keeping a detailed record of each customer’s credit limits and transactions allows you to identify your most valuable customers. This may not reveal fraud or money laundering, but it can assist your company in determining how vulnerable it would be if it lost one or more of its major customers.
Analyzing purchasing behavior allows you to uncover cross-selling and upselling opportunities, as well as any abnormalities that suggest fraudulent activity. If a customer with a long history of annual purchases suddenly starts placing monthly orders, you might want to investigate further. The change may just indicate that your customer is expanding its business, but it could also signal fraud.
Crypto Hazards
The rise of cryptocurrency has increased customer risk for some companies. Although crypto businesses are now required to follow AML standards and KYC procedures, some money launderers have devised workarounds. So, when carrying out cryptocurrency transactions, practice extra caution. Please contact us for additional details.
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