What is customer due diligence and how do you apply it?
17 February 2020
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.
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
Oh Goodlord Limited is an Appointed Representative of Goodlord Protect Limited for general insurance products and credit broking. Goodlord Protect Limited is directly authorised by the Financial Conduct Authority, registration number 836727. You can check this information on the Financial Services Register by visiting www.fca.org.uk/register or by telephoning 0800 111 6768 (Freephone) or 0300 500 8082 from the UK. The FCA is the independent watchdog that regulates financial services.