What Is KYC Due Diligence
Updated: Nov 12
How much do you know about the company or business you're working with? Your clients, suppliers, and even your business partners? How can you find out that they are a legitimate corporation and not a shelf corporation? Where do they get their funds from? Where do their funds go? Or what are the financial risks when partnering up with them?
Know Your Customer or Know Your Clients (KYC) is a requirement for business owners to identify and verify the identity of their clients. It is similar to Know Your Business(KYB) Due Diligence which is primarily used by banks and financial institutions. Financial institutions do these checks as part of a regulatory requirement to prevent Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT). Which every other SMEs and MNCs around the world should do as well.
Why is KYC Crucial?
You might be thinking why is KYC important? Well that's because KYC is a mandatory check Financial Analysis and Risk Assessment Check that financial institutions use to check on corporations to prevent getting involved with criminal or terrorist activity.
I'm pretty sure you don’t want to wake up to a Terrorism Charge right?
How Does KYC work?
Financial institutions such as banks conduct their KYC checks by verifying information and by obtaining classified documents from reliable sources. These documents include, but are not restricted to, the company business registration and ID's of the ultimate beneficial owners (UBO's), meaning shareholders owning 25% or more of shares in the company.
When does the KYC process end?
The KYC process does not end with the verification of the company, it goes far beyond that. Indeed, the institution in-charge constantly monitors the activities of the corresponding entity to ensure that they meet a certain risk profile and a certain set of expectations.
How does it help you or your company?
Well, the ultimate goal is to eliminate Money Laundering and Terrorism funding. It helps you with Risk Assessment and helps you form an opinion. Financial Institutions do this to prevent themselves from being exploited or being unintentionally used for criminal or terrorist activities, mainly Fraud Prevention. KYC Checks also protects the clients by avoiding undesirable incidents like identity theft and fraud.
It could also, in some cases increase revenue for your business. Let’s say 2 companies would like to engage with you on a business opportunity that you are offering. By conducting a KYC Due Diligence check of those 2 companies, you are able to minimize the risk of engaging with an illicit business, have a better understanding of the financial health of the business and gain insight on the key management through extensive and detailed information gathered in the KYC Due Diligence report that provides background financial information on the companies. With that, you are able to make smart, informed business decisions to leverage on your potential business partner during negotiations.
To keep it short, minimize your Risk and maximize your Revenue with KYC Due Diligence.