To build and run an effective AML KYC strategy, you require the following elements.

1. Customer Identification Program or CIP

The only reason why the KYC process is conducted is to identify the legitimacy and authenticity of your customers. One of the most essential elements for successful and Best practices for KYC Compliance is to assess the risk of your customers. This risk assessment should be carried out at an individual level as well as on an institutional level. The Best practices for KYC Compliance provide qualitative guidance to determine the accurate risk level and the policies to mitigate those levels of risks.

The minimum requirements needed for the opening of an individual financial account are somehow delimited in the process of the customer identification program. The data gathered includes:

Name
Address
Contact number
Nationality
Date of birth
Place of birth
Occupation
Employer name
Purpose of transaction
Beneficial owner
Identification number

The same information is then verified with the original source document by at least 2 independent verifiers to ensure accuracy and authenticity. The process of identity verification includes non-documentary and documentary methods like comparing all the information provided by the customer with the help of consumer reporting agencies and public databases, documentary method, or an intelligent combination of both.

The procedures mentioned above are considered the core of the Best practices for KYC Compliance because, unlike other Anti-money Laundering compliance methods, this stands solid and reliable. The procedures need to be codified and clarified in order to provide guidance to executives, staff, and many other benefits to the regulators.

However, it is crucial for you to note that the actual policies or procedures will depend upon the risk-based approach of the financial institution. There are a few factors that you can consider while framing the actual process or procedures.

The enterprise risk related to the risk exposure of the business itself

Geographic risk related to the kind of countries a business deal with

Product, service, or transaction-related risk

Customer/business relationship-specific risk

Channel related risk and Other risks

2. Customer Due Diligence (CDD)

For every financial institution, the only thing that matters is to identify whether you can trust the potential client or not. Customer Due Diligence is basically a critical element that effectively manages your risks and protects your company against terrorists, politically exposed parties (PEPs), and criminals who might involve a heavy risk quotient with them.

There are only three levels of customer due diligence.

Simplified Due Diligence (SDD) is basically the situation where the overall risk of terrorist financing or money laundering is relatively low, and customer due diligence is not required. Low-value accounts make the best example of SDD.

Basic Customer Due Diligence is practically the information obtained for all the respective potential customers to verify their identity and assess the overall risk associated with that particular customer. Enhanced Due Diligence (EDD) is associated with potential high-risk customers. It is all about gathering additional information about your customers who carry a high-risk profile, verifying and evaluating the information to mitigate the associated risks.

In order to enhance the effectiveness of your due diligence program, here are a few steps you can follow.

Ascertain the location and the identity of the potential customers and invest time to understand their basic business activities in-depth. It can be as easy as finding a legal document that verifies your potential customer's name and address.

When authenticating a potential customer, identify their risk category and define what type of customer they are, and then store their information digitally

Beyond basic customer due diligence, it is vital that you carry out various processes to ascertain whether there is room for enhanced due diligence. This could be an ongoing process because the existing customer might convert into high-risk profile customers over time. To avoid the cumbersome situations that may arise, it is better to conduct periodic due diligence assessments on all the existing customers. Following is the list of factors that you must keep in mind to identify the need for enhanced due diligence (EDD).

Occupation of the customer

Location of the customer

Types of transactions

Expected mode of payments

Expected patterns in terms of the kinds of transactions, frequency of commerce, and the value of transactions

Maintaining a record of all EDD and CDD performed on each customer is essential for regulatory audits

3. Ongoing monitoring

Monitoring your customers or potential customers once is not enough. You must develop an ongoing monitoring plan. The continuous monitoring function incorporates oversight of financial transactions and the thresholds developed to map the customer's risk profile.

Depending upon the risk profile of your customer, along with the risk mitigation strategies, you have to monitor a few additional factors.