A Guide to Anti-Money Laundering for Crypto Firms

KYC Due Diligence (Know Your Customer)

KYC/KYB Knowledge & Training

Overview of KYC Due Diligence Policies

KYC Due Diligence (know your customer due diligence) is the process of gathering information and data in order to verify the identity of clients and make sure that they are not involved with money-laundering or another type of financial crime.

Here are the KYC Due Diligence best practices:

  • Establish the identify of the customer.
  • Understand the nature of the customer’s activities
  • Assess money laundering risks associated with that customer to monitor their activity

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What is KYC Due Diligence?

Enhanced Due Diligence (EDD) is the KYC process of gathering data and information to verify the identity of clients, but with additional information required to mitigate the risk associated with the client. There are several characteristics that distinguish regular KYC policies from KYC due diligence policies. EDD policies are considered to be “rigorous and robust”, meaning that they require significantly more evidence and detailed information to be collected. The entire process of KYC Due Diligence must be documented in detail, and regulators should be able to have immediate access to the data. Professionals are often hired in order to analyse data that is collected regarding clients, and the reliability of information sources is of utmost importance.

KYC Due Diligence also requires “reasonable assurance” when calculating a KYC risk rating. This means that the professionals responsible for making a decision must have completed all the necessary research steps and exercised professional skill and care in reaching their judgement.

Lastly, KYC Enhanced Due Diligence also takes into consideration all relevant adverse information. Whether an official document or something posted publicly on the Internet, any information that pertains to money laundering or corruption must be thoroughly considered. When clients or transactions are large enough to warrant KYC Due Diligence, there is no room for leniency and no risks should be taken.

It is important to note that the same standards for regular KYC procedures also apply to EDD. If a company or institution discovers anything suspicious, they must always report it to authorities via a suspicious activity report. Additionally, consistent monitoring is always required, and the use of compliance software is heavily encouraged.

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Originally published June 27, 2014, updated August 18, 2022

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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