Moody’s is working to prevent criminal infiltration of financial systems across the world by providing the gold standard of customer screening. Our industry leading KYC and AML compliance solutions uncover and eliminate risks before they materialize. It’s important for all companies in the financial sphere to understand AML KYC compliance solutions. But what do AML and KYC stand for, why are they important, and how do we use AML KYC compliance solutions to protect the world’s financial systems?
Anti-money laundering (AML) is a broader and more holistic practice than KYC. AML compliance is the comprehensive set of policies that a company uses to protect against criminal infiltration, money laundering, terrorism financing, human trafficking and more. KYC is an important part of AML for corporations, banks, fintechs, and other financial institutions.
Know your customer (KYC) is the regulatory process in which a financial institution verifies a customer’s identity by assessing their credentials before allowing them to use a service. KYC policies allow companies to better understand their customers and their customers’ financial dealings, which helps to effectively mitigate and manage risks.
A company’s AML compliance program has many steps, and KYC is the first one. KYC is the process used to verify a client’s identity and understand their risk profile, but there are more steps necessary to completely protect against financial crimes.
A complete AML compliance program includes KYC procedure as an initial step to verify a customer’s identity, manage their risk factors, and monitor their accounts. KYC is the most crucial step in an institution’s AML policy. It’s important to carefully verify a customer’s identity, assess their risk, understand a customer’s general financial habits, and have the necessary procedures in place to catch abnormalities. Strong AML compliance policies allow companies to easily find and eliminate risks as they arise.
KYC may seem like a simple concept, but when working with some of the largest financial entities in the world, the processes of customer identity verification and customer due diligence are critical to a successful AML program. There are three components of KYC compliance.
The first pillar of a KYC compliance policy is the customer identification program (CIP). CIP was imposed under the USA Patriot Act in 2001 to better protect the world’s financial systems in response to the September 11 attacks. The Patriot Act made it mandatory for all banks to implement written CIPs based on the bank’s size and its customer base. The act also required all banks to implement CIPs into their larger AML policies. CIPs verify the customer's identity using credentials like their name, date of birth, address, social security number or other documents.
The second pillar of KYC compliance policy is customer due diligence (CDD). CDD is a KYC process in which all of a customer’s credentials are collected to verify their identity and evaluate their risk profile. It is broken down into two separate tiers: simplified due diligence (SDD) and enhanced due diligence (EDD). SDD is used for accounts at low risk for money laundering or terrorism funding, like standard bank accounts or low-value bank accounts. EDD is used for customers that are at a higher risk of infiltration, terrorism financing or money laundering. If a customer is determined to be a higher risk, additional information collection is necessary. EDD procedures also include transaction monitoring. It’s important to keep track of the typical amount and frequency of a customer’s transactions to better find irregularities. It is the financial institution’s responsibility to determine each customer’s risk profile to determine if SDD or EDD is necessary. Learn how to drive ROI with CDD solutions.
The third pillar of KYC policy is continuous monitoring. Checking a customer once isn’t sufficient to ensure security. Understanding a customer’s typical account activity and monitoring the activity is necessary to catch irregularities and eliminate risks as they arise.
KYC AML compliance is not only important to keep customers protected and satisfied, it’s the law. All banks and financial institutions must comply with regulated sets of AML policies. KYC policies are the first step in a holistic AML approach to financial security. They protect against identity theft and ensure that banks and other financial institutions aren’t involved — knowingly or not — with terrorism, money laundering, human trafficking or other criminal organizations.
Our platform can help your institution protect against risks better than ever before. Our market-leading, network-based platform combines deep datasets, risk analytics, human expertise and AI technology to precisely identify key counterparty risks and eliminate them before they materialize.
If you have any questions about MA’s solutions or would like to discuss KYC for your business, get in touch via our contact form.