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5 common mistakes in KYC process

September 28, 2023

Know Your Customer (KYC) is an important process for companies in a variety of industries, including outsourced accounting, real estate and legal services. It helps companies verify the identity of their customers and assess potential risks. However, there are common mistakes that can hinder the effectiveness of the customer due diligence process. In this blog post, we will look at five common mistakes to avoid when conducting customer due diligence.

1.Insufficient documentation

One of the most common mistakes in the customer due diligence process is the reliance on incomplete or inadequate documentation. Failure to obtain and verify the necessary identification documents can lead to inaccurate customer risk profiles and, as a result, potential misconduct. It is important to establish a clear list of required documents and to ensure that these documents are provided by clients, attached to the client file and stored in accordance with legal requirements.

2.Inadequate customer research

There is no one-size-fits-all procedure for customer research. Businesses are required to carry out different levels of due diligence – simplified, standard or in-depth – depending on the risk profile of the client. A common mistake is to apply a single customer due diligence procedure to all customers, regardless of their risk.

To address this problem, customer due diligence procedures need to be developed in a risk-based approach. This involves assessing the level of risk associated with each customer and tailoring the customer research process accordingly. High-risk clients may require more extensive and in-depth due diligence as well as ongoing monitoring, while low-risk clients may be subject to a simplified due diligence process.

3.Lack of constant monitoring

Customer research is not a one-off exercise, it is an ongoing process. Customer profiles can change over time and potential risks can emerge even after a customer has been screened.

To avoid this mistake, businesses need to set up robust monitoring arrangements where customer information is periodically reviewed and transactions analysed. Automated reminders can help businesses to remember to update information in customer profiles and to re-examine.

4.Manual data entry errors

Manual data entry is prone to human error, and even small errors can have significant consequences. Typing errors or incorrect data entry can lead to misidentification or incomplete customer records followed by incorrect checks, e.g. against sanction lists, so it is important to pay special attention to data entry.

5.Insufficient training

Effective customer research procedures require that the staff carrying them out are well trained. A common mistake is to assume that all staff are adequately trained in the customer research process.

To tackle this problem, businesses need to invest in comprehensive employee training programmes. This includes training not only on customer due diligence but also on other components of the internal control system. It is also essential to regularly update training programmes to keep staff up-to-date with changing compliance requirements.

In conclusion, effective customer due diligence procedures are essential to mitigate risks, comply with legal requirements and preserve the integrity of your business. By avoiding these common mistakes, businesses can improve their customer due diligence processes and better protect themselves and their customers.

If you are also concerned about the security of your company and your clients, comply with the requirements of the AML/CFT laws by using the Compliant Platform or by requesting a consultation.

AML.Plus team


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