Learning_AML KYC Process
1. What is KYC, and why is it important?
KYC stands for Know Your Customer, a regulatory and compliance process used by financial
institutions to verify the identity of their clients. Its primary purpose is to prevent identity
theft, financial fraud, money laundering, and terrorist financing.
KYC is important because it allows institutions to assess the legitimacy of a customer's
financial activities, understand their risk profile, and ensure that they are not involved in
illicit activities. Regulatory bodies such as FATF, FinCEN, and local financial regulators
mandate KYC to maintain financial system integrity.
2. What documents are typically required for individual and corporate KYC?
• Individual KYC: Government-issued ID (passport, driver's license, national ID), proof
of address (utility bill, bank statement), recent photographs, and financial documents
if needed.
• Corporate KYC: Business registration certificate, Articles of Association,
Memorandum of Association, ownership structure, financial statements, tax
identification number, and Identification documents of Ultimate Beneficial Owners
(UBOs), Directors, and Authorized Signatories
3. What are the stages of the KYC process?
The KYC process typically includes the following stages:
1. Customer Identification Program (CIP): Collecting and verifying identity information
and documents.
2. Customer Due Diligence (CDD): Risk rating the customer and assessing the nature of
the relationship.
3. Screening: Performing PEP, sanctions, and adverse media screening.
4. Ongoing Monitoring: Monitoring transactions for unusual or suspicious activity.
5. Periodic Reviews and Refresh: Updating customer records based on risk
classification (e.g., every 1, 3, or 5 years).
4. Can you explain Customer Due Diligence (CDD) and Enhanced Due
Diligence (EDD)?
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• Customer Due Diligence (CDD): Standard verification process that includes identity
checks, assessing financial behaviour, and monitoring transactions to ensure
compliance.
• Enhanced Due Diligence (EDD): A more thorough assessment applied to high-risk
customers, such as Politically Exposed Persons (PEPs) or businesses with complex
ownership structures. EDD may include deeper financial scrutiny, source of funds
verification, and ongoing monitoring.
5. What are the key risks that KYC aims to mitigate?
• Money laundering—disguising illicit funds as legitimate transactions.
• Terrorist financing—preventing financial support for illegal activities.
• Fraud & identity theft—ensuring customers are legitimate.
• Regulatory violations—complying with local and global financial laws.
• Sanctions evasion—preventing blacklisted individuals or entities from accessing
financial services.
6. What is PEP screening? How do you handle a PEP match?
• PEP (Politically Exposed Person) screening identifies individuals with influential roles
in government or international organizations who may pose higher financial risks.
(e.g., politicians, judges, military officials and their close associates or family
members.)
If a PEP match is found:
Apply Enhanced Due Diligence (EDD), verify the source of funds, closely monitor
transactions, and document the findings to ensure compliance with regulatory
requirements.
7. How do you perform sanctions screening, and what lists do you check?
Sanctions screening involves checking customer names against global and domestic
sanctions lists to prevent transactions with prohibited individuals or entities. Commonly
checked lists include:
• OFAC (Office of Foreign Assets Control)—U.S. sanctions list.
• EU Sanctions List—European Union restrictions.
• UN Sanctions List—United Nations global sanctions.
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• Local regulatory lists—Country-specific sanctions imposed by financial authorities.
If a potential match arises:
• It is investigated manually for accuracy (false positives are common).
• If confirmed, the case is escalated to compliance/legal, and regulatory obligations
(e.g., reporting or blocking accounts) are followed.
8. What would you do if you find discrepancies in a client's documentation?
If identify any discrepancies in a client’s documentation, need to follow a structured and
risk-aware escalation process to ensure compliance and integrity of the KYC file.
Identify the issue: Determine the nature of the discrepancy (e.g., incorrect details,
mismatched signatures, expired documents).
Check Internal Sources:
I cross-reference the documentation with existing internal records and systems to rule out
clerical errors or previous updates that might explain the inconsistency.
Request Corrected Documents from the Client:
If the discrepancy is confirmed, I request valid, updated, or additional documents to resolve
the issue ensuring they meet regulatory and internal policy standards.
Verify authenticity: Cross-check the provided documents against official sources or
databases to confirm validity.
Escalate if necessary: If suspicions of fraud or misrepresentation arise, escalate the
case to compliance officers or the AML team.
Decide next steps: If the discrepancy is minor and resolved satisfactorily, proceed
with onboarding. If serious concerns persist, reject the application or report to relevant
authorities.
9. What are the major steps during onboarding a customer/client?
Onboarding a customer requires a structured KYC and AML process to ensure compliance
and mitigate risks. The key steps include:
Customer Identification (CIP – Customer Identification Program):
• Collect identity documents (passport, national ID, driver’s license).
• Verify address proof (utility bill, bank statement).
• Validate the authenticity of provided documents
Document Collection & Verification:
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• For individuals: POI, POA, TIN, etc.
• For corporates: Certificate of Incorporation, Board Resolution, UBO declarations,
financial statements, and authorized signatory lists.
• Validate documents for authenticity, expiration, and regulatory adequacy.
Risk Assessment & Due Diligence
• Perform Customer Due Diligence (CDD) for standard risk customers.
• Conduct Enhanced Due Diligence (EDD) for high-risk clients, including PEPs
(Politically Exposed Persons).
• Assess the customer’s business activities, transaction patterns, and sources of funds.
Sanctions & Watchlist Screening
• Conduct sanctions screening, PEP screening, and adverse media checks on all
relevant parties (customer, UBOs, directors, signatories).
• Use automated tools and verify potential matches manually to avoid false positives.
Internal Approvals & Compliance Review:
• Submit the complete KYC file for second-line compliance review (if applicable).
• Ensure compliance with local and international AML regulations.
• Maintain proper records for audits and regulatory reviews.
Ongoing Monitoring & Periodic Reviews
• Implement continuous transaction monitoring to identify suspicious activity.
• Conduct periodic KYC updates to refresh client information.
• Review unusual transactions and escalate any red flags.
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