Financial Crime World

CHAD’s Know Your Customer (KYC) Process: A Critical Step in Combating Financial Crime

In today’s globalized financial landscape, combating illegal activities that use the financial industry to move or hide money is a top priority. Governments and central banks around the world are strengthening their KYC policies, creating new regulations, and extending existing ones to cover nearly every part of the global financial ecosystem.

The Growing Prevalence of Financial Crime

The increased focus on KYC is partially due to the growing prevalence of financial crime across the world today. As financial institutions connect with corporate companies across countries and territories, regulators have adapted and strengthened KYC checks to keep pace with the increasing value being moved around the globe each day.

The KYC Process

Financial institutions begin the KYC process by asking customers to provide basic information about their business operations and individuals. This includes:

  • Names of directors
  • Business addresses
  • National insurance or social security numbers
  • Company numbers
  • Other identifying details

This information is supplemented with publicly available data from open sources such as:

  • Company registrations
  • Stock exchange listings
  • Annual reports

Comparing KYC Information to Relevant Lists

The collected KYC information is then compared to lists of individuals and organizations known to governments and law enforcement agencies. These lists aim to identify:

  • Individuals suspected of criminal activities
  • International sanctions
  • Intelligence on bribery or money laundering
  • Politically Exposed Persons (PEPs)

Risk-Based Approach

A risk-based approach is taken after comparing the collected KYC information with the relevant lists. Financial institutions will decide whether or not they can do business with an entity based on their likelihood to pass future KYC checks. Entities that pass the necessary checks are given a risk rating, while those above a certain threshold require enhanced due diligence (EDD).

Risk factors include:

  • Companies based in sanctioned territories
  • Directors who are PEPs
  • Legal persons named in company documents as main ultimate beneficiary owners

The Benefits of KYC Registries

Completing KYC checks on all customers and entities puts a costly burden on financial institutions. However, the rise of KYC registries has promised to solve much of this headache for financial institutions and their customers. A central repository stores and keeps up-to-date the necessary KYC information, allowing financial institutions to log in and consume the information they need at any time.

Registries like Swift’s own KYC Registry allow for the standardized exchange of nearly all KYC information, greatly reducing the burden of the KYC process on both financial institutions and corporate customers.