Customer Due Diligence
Supervisors around the world are increasingly recognising the importance of ensuring that their banks have adequate controls and procedures in place so that they know the customers with whom they are dealing. Adequate due diligence on new and existing customers is a key part of these controls. Without this due diligence, banks can become subject to reputational, operational, legal and concentration risks, which can result in significant financial cost.
Banks are required to "have in place adequate policies, practices and procedures that promote high ethical and professional standards and prevent the bank from being used, intentionally or unintentionally, by criminal elements".
Certain key elements should be included by banks in the design of KYC programmes. Such essential elements should start from the banks’ risk management and control procedures and should include
- customer acceptance policy,
- customer identification, and
- on-going monitoring of high risk accounts
Banks should not only establish the identity of their customers, but should also monitor account activity to determine those transactions that do not conform with the normal or expected transactions for that customer or type of account. KYC should be a core feature of banks’ risk management and control procedures, and be complemented by regular compliance reviews and internal audit. The intensity of KYC programmes beyond these essential elements should be tailored to the degree of risk.
