KYC Checklist - Ultimate KYC/AML Guide for Businesses & Financial Institutions

Having an effective KYC compliance process is a critical aspect of achieving anti-money laundering compliance today. It serves as a blocker against illicit activities like money laundering and other financial crimes. Without the right KYC compliance process, businesses can easily fall victim to facilitating transactions for criminals, which may affect their customers and reputation by extension.

Organizations are vulnerable and will likely fail to comply with AML laws as laid down by the government without the right KYC checklist in place. This can easily attract heavy penalties and lead to loss of reputation and operational license. 

To simplify the process, we have put together a KYC checklist every business should reference to fortify their compliance programs and defense against financial crimes.

What is KYC Compliance?

KYC compliance refers to a set of processes put in place by an organization to achieve compliance regulations such as AML laws. Basically, businesses must identify and verify customers before onboarding and throughout their business relationship. This way, the business can assess the level of risks posed by such customers throughout the relationship. In a banking context, for example, it helps banks verify their customers before opening an account and understand their financial habits to quickly detect unusual activities immediately as they occur. 

An effective KYC compliance program consists of customer identification, customer due diligence, and ongoing monitoring. These three steps consist of sub-processes that help the business identify potential criminals and prevent money laundering, terrorist financing, and other financial crimes. 

KYC and AML compliance is monitored by regulatory bodies depending on specific regions. However, the Financial Action Task Force (FATF) lays out global guidelines for these institutions to follow. 

What KYC Documents are Required for Customer Identification?

Although requirements vary depending on the jurisdiction, KYC documents required for customer identification generally include: 

• A valid ID card with a photo
• Proof of address (e.g. utility bills, mortgage bills, etc.)
• Voters’ Card
• Drivers’ License
• Passport
• Government or state-issued and approved IDs and more

If it is a business, the organization is required to conduct Know Your Business (KYB) compliance to determine its legitimacy. Key information like the business name, incorporation details, registration number, stakeholders, and ultimate beneficial owners (UBOs) need to be identified and verified. The organization also needs to verify the identities of stakeholders and UBOs and run AML checks on them.

This is because illegal businesses mostly hide their true owners or beneficiaries to keep them from law enforcement. In this system, the board of directors of the business may not be the true owners, hence the need for due diligence. 

The process is quite tedious when done manually; however, with the right technology, it can easily be automated. Smile ID’s Business verification and AML check solution empowers organizations to achieve this. Book a free demo to see how it works. 

Know Your Customer (KYC) Checklist for Businesses Today

There are three major boxes businesses need to tick off in their KYC checklist today to stay AML compliant. Effective KYC process must include: 

1. Robust Customer Identification Program (CIP)

A robust customer identification program should be the first step when ticking off a KYC checklist for AML compliance. It is designed for the customer onboarding stage, where the organization is required to collect and verify the identity of the customer to ensure compliance with regulatory standards. Digital tools could be used to achieve this to minimize human errors.

Information collected should include key details like their:

• Name
• Age
• Date of birth
• Address
• ID number
• Incorporation documents for businesses

Information collected in this stage will play a key role in customer verification and subsequent risk assessment during the duration of the business relationship. 

2. Customer Due Diligence (CDD)

Customer due diligence is the process of verifying the accuracy of the data collected from the customer to ensure it is correct and up to date. After obtaining the customer information, organizations should ideally verify these data from official databases through documents such as driver’s licenses, passports, birth certificates, etc. This can be achieved with an effective document verification solution.

Organizations should employ the following CDD processes to determine a customer's risks:

a. Simplified Due Diligence (SDD)

This is the lowest due diligence to be conducted on customers. It is suitable for customers who pose low risks due to the nature of their account or business relationship. Simplified due diligence is mostly employed for customers with a proven track record of being clean.

b. Customer or Standard Due Diligence (CDD)

Standard due diligence takes the process a step further. It is the regular requirement for due diligence to be conducted on a customer. Usually, this customer has a moderate risk level, therefore, their background, source of funds, transaction pattern, and other information are screened. 

c. Enhanced Due Diligence (EDD)

Enhanced due diligence is the most extensive among the three and is conducted on high-risk customers or transactions. In this process, additional customer information beyond their basic data and background is gathered, verified, and analyzed for risk. Business affiliations, transaction volumes, involvement in high-risk jurisdictions, ownership structures (for legal entities), and more are verified.

The organization is then required to classify the customer risk level based on regulatory standards. Factors that may contribute to customer risk rating include: 

• Domicile in or regularly visits high-risk jurisdictions
• Politically exposed persons (PEPs) designated
• Presence on global sanctions and watchlists
• Poor adverse media screening score
• Presence in relevant criminal registries

The risk rating calculation takes several factors into account, especially around the likelihood of the customer being involved in financial crimes. The higher the customer risk, the more the monitoring of their transactions. For extremely high-risk customers, more AML/CFT due diligence measures like a source of wealth and enhanced due diligence will need to be conducted. 

3. Constant or Ongoing Monitoring

Beyond customer identification and due diligence, ongoing monitoring is a final layer that monitors customer behavior for emerging risks. This is because a customer's role and risk level may develop over time, and businesses need to be aware as soon as they do. Regular monitoring can help businesses achieve this to maintain regulatory compliance and prevent financial crimes. 

However, ongoing monitoring can be a difficult task to carry out manually. It is, therefore, important that the process is automated to ensure consistency, accuracy, and scalability, especially for large institutions. 

Ongoing monitoring activities may include: 

a. Customer Monitoring

Continuously accessing the customer profile to get real-time updates on changes in risk factors. This enables the organization to adapt to new risks and stay ahead of financial crimes.

b. Payment Screening

Customers at certain risk levels or performing transactions above a threshold may have their payment screened for illicit activities. This helps prevent illegal funds from accessing the financial system during money laundering. For example, a biometric authentication can be placed on the customer for transactions above certain thresholds.

c. Transaction Monitoring 

This involves real-time analysis of customer habits, transactions, and patterns to detect suspicious activities and flag them for money laundering. 

Recommended: How to Prevent Digital Identity Fraud

Implementing your KYC Checklist as a Business

The next step is to implement the defined KYC checklist into your business activities and organization as a whole. Steps that would help include: 

i. Adopt it into your onboarding process

The very first step is to integrate the full KYC checklist into your customer onboarding process. This way, you can adopt customer due diligence as part of the onboarding requirements, adding compliance to the grassroots customer journey.

ii. Conduct proper training and awareness 

Regardless of how complete a KYC checklist is, without the right internal training and staff awareness, implementation will prove frustrating. This is why it is important to train concerned staff and the organization as a whole on the importance of compliance and its benefits to the institution.

iii. Adopt the right technology

Performing KYC processes manually is time-consuming, inefficient, and expensive. Therefore, the process is best automated through the use of technology. You can easily customize your customer onboarding and monitoring flow using Smile ID solutions. Book a free demo to see how it works. 

iv. Record keeping and reporting

Record keeping and suspicious activity reporting are key requirements for achieving KYC compliance. Businesses need to keep customer records like due diligence data and verification results, transaction history, etc. These records are important in compliance auditing and financial crime investigations. 

v. Data security and privacy measures

Data security should be treated with uttermost importance according to laid down laws, especially as organizations collect a lot of data on customers. Key regional (e.g. NDPR in Nigeria) and more global data laws (e.g. GDPR in Europe) should be adhered to. 

v. Regular updates

Regulations evolve every year to keep up with new criminal tactics, and your KYC process should promptly align with these updates. It is important that you incorporate changes to requirements and guidelines as soon as possible to stay up to date with regulatory standards.

How does a KYC Checklist Process Vary per Industry?

The KYC checklist process varies from industry to industry depending on the guidelines given by the regulatory body in charge. Different industries have varying levels of risk, e.g., banking and finance likely have more AML risk levels than healthcare. Therefore, it is important that you can interpret the exact laws that govern the industry your business operates in. 

You can book a free session to speak to our compliance expert who will guide you through.

How to Choose a KYC Solution Provider

Here are some of the key steps to choosing the right KYC solution provider for your business:

Step 1: Deciding Your Requirements

Understanding your business’s KYC requirements as outlined by the regulatory authorities is the first step in determining the kind of KYC partner you need. It also plays a key role in determining internal and external partnerships you need to establish.

Step 2: Evaluate the Geographical Coverage of  Available Providers

 After understanding your business requirements, the next step is to gather qualified KYC solution providers and filter them based on their geographical offerings and presence. For example, if your business is multi-regional, you will require a KYC solution partner with presence and solution coverage in all the countries captured in your business roadmap. This way you can easily scale when the time comes to expand to that jurisdiction.

Step 3: Document Verification Capability

A KYC partner is only as good as its ability to accurately verify ID documents. Although providers have different ways to verify customer IDs, Document Verification is the most efficient method when considering uptime and scalability. Your chosen solution provider should be able to verify the most frequently used documents of your customer base. 

Step 4: Evaluate their Fraud Prevention Capability

Catching fraud early is essential to prevent financial loss and reputational damage to your business. The right KYC provider should have the technology to prevent fraudulent onboarding attempts. Key offerings to consider include biometric verification, facial verification, liveness check, facial/ selfie spoof detection, duplication, etc.

Step 5: Evaluate the Impact on User Experience 

Integrating with the wrong KYC solution will negatively impact customer ease of onboarding, the onboarding rate, and overall user experience. When checking for the effect of a partner on users’ onboarding experience, speed, accessibility, and customizability are the three most important factors to consider. 

For example, internet connectivity is still spotty in many parts of Africa. It is vital to pick a partner optimized for low-bandwidth environments to prevent user drop-offs due to long upload times.

Step 6: Technological Compatibility

This is easily one of the most important considerations in your choice to settle with a KYC solution provider. You need to choose a partner whose technological solution is compatible with yours. 

The last thing you want is to hire a partner whose solution is not directly compatible with yours, which can quickly increase integration time. You may also need to optimize your product for different devices and access points if running a multi-regional business. The more options a provider offers, the better for your long-term roadmap. 

Step 7: Test Prospective KYC Partners and Choose the Best

The last step is to test the KYC providers that tick steps 1 to 6 on this list. The goal of the test should be to get a close-up view of the partner’s capability and determine their compatibility with your business goals.  

Our white paper on KYC Checklists discusses each of these 7 steps in detail, outlining the key things to consider per step and how they sum up to help you make the best decision for your business. Read the full guide - The ultimate KYC checklist for Businesses Today.

Achieving KYC Compliance through Automation with Smile ID

Ultimately, KYC compliance is nonnegotiable and a key requirement for businesses operating in regulated industries. Given the scope and requirements across jurisdictions, it is important that businesses automate the KYC compliance process using the right software. This makes the process more cost-effective, efficient, and time-saving.

Here’s how Smile ID helps businesses automate their KYC compliance process: 

Step 1: Identity Verification

Smile ID offers an array of identity verification solutions to help businesses meet their KYC compliance needs. This includes: 

• Document Verification: empowers businesses to verify 8500+ identity documents across 226 countries globally using biometric authentication and OCR technology. Our solution boasts 100% coverage across all African countries with at least 3 ID types covered.
• Government KYC Checks: leverage direct access to databases from ID issuing authorities across Africa to verify customer identity. 
• Enhanced Document Verification: Combine the functionality of Document Verification and Government KYC checks in one robust solution for a more detailed compliance check.

Step 2: AML Check

Take extra precautions by running an AML check on the customer against PEP, Sanctions, and watchlist.

Businesses can perform this via our no-code platform or API/ SDK integration. Book a free demo today to learn more.