In order to prevent money laundering and terror financing, nations worldwide require financial institutions to complete risk assessments on their customers. Know your customer or KYC is the risk assessment process, involving three key steps: a customer identification programme, customer due diligence and ongoing monitoring.
In cases when a customer is suspected as high risk, banks and other financing entities must use heightened screening and monitoring procedures to ensure customer due diligence. Here are five ways to enhance customer due diligence procedures for KYC Australia.
1. Verify and Re-Verify Customer ID Information
Verifying customer ID is the first step in KYC. Once a high-risk person is identified, whether they are a potential customer for onboarding or an existing customer, you must verify and re-verify the individual’s ID. Australian customers will need to provide their full names, birthdates and addresses via reliable and independent documents or electronic data. Acceptable examples include:
- Original photo ID – driver’s licence, passport, government proof of age card or foreign equivalent documentation
- Original or certified copy of a primary non-photo document – birth certificate, birth extract, health care card or foreign equivalent
- Original or certified copy of secondary ID document – tax notice from Australian Taxation Office or utility bill
Australian companies, trusts, partners, and government bodies must also have verified ID information such as stock exchange registration, public documents such as an annual report or a listing on the Australian Securities and Investments Commission database.
2. Identity High-Risk Situations
It is your business’s responsibility to identify high-risk customers. The Australian Transaction Reports and Analysis Centre, also known as AUSTRAC, has implemented a checklist of characteristics for high-risk situations. These red flags include:
- The customer is a foreign PEP or politically exposed person
- The customer is reported for suspicious activity or behaviour
- The customer’s transactions involve an individual or company located in a high-risk foreign country
- The customer appears on sanctions or criminal record databases
3. Gather Additional Information And Analyse the Customer’s Profile
Increase due diligence by clarifying and updating customer information. You may analyse the customer’s accounts to find out where deposits are originating. After examining transaction records, you can understand and anticipate customer banking activity patterns. Your organisation may have procedures that only require this step for high-risk individuals or for situations where enhanced due diligence is “practical and necessary”.
4. Continue Detailed Analysis and Ongoing Monitoring
Continued analysis and monitoring are recommended to check for changes in banking patterns. You can compare current banking activity to the previously observed patterns. Monitor the types and frequencies of new transactions and determine their purposes. The depth and frequency of monitoring may vary among financial institutions, but expect them to implement similar precautions for high-risk clients.
5. Get Approval From Senior Management on a Case-By-Case Basis
When there is apprehension about onboarding a new customer or approving services for an existing customer, seek approval from upper management. This allows the organisation to share due diligence responsibilities and authorise customer approvals. It also helps to have “another set of eyes” on high-risk cases to check and re-check information and discuss the best course of action:
- Approve processing of the transaction?
- Approve the customer for the service?
- Continue or end the company’s business relationship with the customer?
6. Seek Help If Needed
If you are struggling to maintain your KYC requirements and want to stay in compliance, consider outsourcing. There are several companies offering KYC solutions including optimised data, customer screening and re-verification services.
Financial institutions and businesses that commit to establishing effective high-risk assessment policies avoid violations for KYC non-compliance and greatly reduce the potential for financial crimes. Follow suggestions for implementing effective customer due diligence policies for your company and consider outsourcing your KYC tasks if you need help.