How well do you know your customer?

Have you ever thought about how well you know your customer? Whilst it is not a legal requirement for unregulated businesses to undertake due diligence checks on their customers it could be argued that it is wise practice to undertake. For those business that are regulated – not just financial institutions and banks, but also letting agents, estate agents, accountants and the gaming sector – are your systems and processes robust enough to protect you under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and associated legislation / regulations?

So why should you know your customer?

Know Your Customer (KYC) is the process by which businesses verify the identity and financial conditions of customers before doing business with them.  Having a robust KYC policy and procedure allows you to establish the salient facts about the customer from the outset of the relationship and should be applied to new and existing customers alike.

Within the KYC process undertaking Anti Money Laundering (AML) checks can be an integral part of the compliance management system, which is advisable in all businesses but essential for every regulated business.

For those regulated businesses it is crucial to build a strong and robust fraud-prevention system, incorporating effective anti-money laundering measures into their business processes.

KYC and AML checks help to guard against money laundering, fraud and corruption, which can affect and impact on business and individuals alike, with significant consequences. KYC processes have also helped to prevent late payment and business failure. Know Your Customer is not just a risk mitigation measure but also a safeguarding process. Without the correct policies in place, businesses can risk facing serious loss of funds and reputational damage.

To ensure you know your customer, due diligence checks are an integral process to protect you and your business.

So how do you approach and undertake due diligence checks?

Implementing due diligence checks will allow you to ensure that the KYC and AML requirements are performed and where required, you are compliant with the legislation. It will give you peace of mind that you and your business are compliant, but also that you know you are doing business with a reputable, legally compliant customer.

Your due diligence checks will identify your customers and verify that they are who they claim to be. This process will help to identify warning signs of an individual’s or business’s questionable or unusual activities.

You will require personal information of the Directors of the business such as their full names, home address, date of birth and a photo where possible. This information should be recorded and identification checks then undertaken. This should highlight any discrepancies. Further information may be required where individuals are acting on behalf of another and identification of the beneficial owners of the business may be required. Companies House is always a good starting point for your basic information. You should also ask for a government issued document like a passport, along with utility bills, bank statements and other official documents. Other sources of customer information include the electoral register and information held by credit reference agencies such as Experian and Equifax.

So when should you undertake due diligence?

According to HMRC, businesses must meet certain day-to-day responsibilities if your business is covered by the Money Laundering Regulations which include carrying out ‘customer due diligence’ measures. Internal controls and monitoring systems must be put in place, however, the nature of these checks will depend on the size and complexity of the business, including the number of customers you have and the number and type of products and services you provide. For those businesses not covered by the regulations, customer due diligence practises will only benefit and protect your business.

HMRC states that you must apply customer due diligence measures:

  • when you establish a business relationship with a customer (or another party in a property sale)
  • when you suspect money laundering or terrorist financing
  • when you have doubts about a customer’s identification information that you obtained previously
  • when it’s necessary for existing customers – for example if their circumstances change
  • if you are not a high value dealer, when you carry out an ‘occasional transaction’ worth €15,000 or more
  • as a high value dealer, when you:
  • make a payment to a supplier worth €10,000 or more
  • carry out an ‘occasional transaction’ worth €10,000 or more

More information and guidance can be found at: Your responsibilities under money laundering supervision

Should any discrepancies or alarms be raised then further checks will be required, this is often referred to as enhanced due diligence.

What is enhanced due diligence?

This involves additional checks including obtaining further information to confirm a customer’s identity, checking further documentation and researching further information. Where a customer is not physically present or is from a high risk country, enhanced due diligence should take place automatically, as is the case with politically exposed persons (PEPs), who are at particular risk of corruption and bribery and are thus subject to additional checks in the form of PEPs and Sanctions checks.

What are the consequences?

The consequences of failing to KYC or undertake AML checks are significant with damage to reputation, loss of custom, fines and imprisonment.

Demonstrating your compliance and awareness in this area provides your customers with security and knowledge they are dealing with a transparent, ethical and moral business, together with providing your business with the peace of mind it is legally compliant and is trading with law abiding customers.

Where to go for assistance with KYC and AML

There are many organisations in the marketplace to assist businesses with their KYC and AML obligations. Kompli-Global provides accurate and comprehensive intelligence on organisations and their people to empower businesses to make informed decisions. Their proprietary search platform provides an in-depth overview of published information on individuals and entities, which will allow businesses to engage and retain profitable business without fear of regulatory sanction and reputational damage. This makes due diligence fast, simple, scalable and affordable for any business with KYC and AML obligations. For further information check out their website