How Banks Conduct KYC Customer Due Diligence

An accomplished financial professional for more than four decades, Gerald Michael Shaw has extensive industry experience ranging from managing financial institutions to insurance. Gerald Michael Shaw works as a global compliance officer at Dominion Bank & Trust Company Limited, where he’s in charge of a compliance and regulatory program that oversees anti-money laundering (AML) and Know Your Customer (KYC) laws and regulations.

Know Your Customer (KYC) is a key financial regulatory requirement where banks and other financial institutions are required to establish guidelines for verifying, identifying, and authenticating their clients. Banks are highly regulated to prevent them from becoming targets of financial frauds and scams, as well as being used as channels for transferring illicit funds. Banks are required to conduct thorough customer identification procedures before client onboarding to safeguard themselves against money laundering.

Customer due diligence is performed with an aim of establishing whether a customer is trustworthy and assessing the risk associated with them. This process looks to uncover money laundering attempts from criminals, terrorist organizations, and politically exposed persons (PEPs). Customer due diligence is performed at three levels, which are simplified due diligence, basic due diligence, and enhanced due diligence.

Simplified due diligence is performed when there’s no need of full due diligence, since the risk of money laundering is low. For basic due diligence, the bank gathers key information for all its customers for purposes of identity verification and assessing risks associated with each customer. Finally, enhanced due diligence is performed for high risk clients where extra information is sought in order to have a clearer understanding of customer activities to mitigate associated risks.