Know your customer (KYC) checks, also known as customer due diligence, are an essential part of ensuring that your business is compliant with financial regulations, such as the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. Customer due diligence means not only verifying that your customers are who they say they are, but also having an understanding of the purpose and intended nature of their relationship with your business. In some situations, you may need to carry out customer due diligence on existing customers, or apply enhanced due diligence. If you have doubts about a customer’s identity, you must stop dealing with them until you’re sure.
When to apply customer due diligence
The government’s guidance for anti-money laundering regulation sets out when businesses need to apply customer due diligence:
- when you establish a business relationship with a customer
- 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
Establishing a business relationship with a customer
A business relationship is one that you enter into with a customer where both of you expect that the relationship will be ongoing. You will need to obtain information on the purpose of the relationship and the intended nature of the relationship, for example, where funds will come from and the purpose of transactions.
Changing customer circumstances
It’s important to be aware that customer due diligence isn’t always a one-off check. You need to make sure the information on your customers is up-to-date information on your customers so that you can amend your risk assessment of a particular customer if their circumstances change and carry out further due diligence measures if necessary. Changes of circumstance may include a big change in the level or type of business activity or a change in the ownership structure of a business.
Enhanced due diligence
In some situations, you may need to carry out ‘enhanced due diligence’ on your customers. These situations include:
- when the customer is not physically present when you carry out identification checks
- when you enter into a business relationship with a ‘politically exposed person’ when you enter into a transaction with a person from a high risk third country identified by the EU
- any other situation where there’s a higher risk of money laundering.
This article is based on guidance from gov.uk and is intended as a guide only. It is not exhaustive and doesn't constitute legal advice. See gov.uk for more information on customer due diligence.