Understanding Know Your Customer (KYC) and how to be compliant

Know your customer is a business principle within the Financial Intelligence Centre Act (FICA) that encourages relevant companies to establish and verify the identity of their customers and clients before or during the time they do business.

FICA aims to combat financial crimes such as money laundering, tax evasion and terrorist financing. The Know your Customer requirements ensure that clients are not involved in criminal and unscrupulous activities, which could significantly affect all that are associated with them. The cost of non-compliance to businesses is more than financial; the reputational damage when called out for such violations is equally critical and can often limit the ability to conduct business as usual.

Which businesses need to be KYC Compliant?

Those required to comply include financial institutions, attorneys, trustees and executors, estate agents, trade and stock brokers, and management companies.

The act introduced the Know Your Customer (KYC) requirements, where businesses have to establish and verify the identity of all clients before instituting a business relationship with them or concluding any transaction.

What are the requirements for KYC verification to be FICA compliant?

The act contains a host of responsibilities and measures that all financial institutions are required to incorporate into their due diligence practices. This includes KYC, which is possibly one of the key aspects of FICA as it sets the wheels in motion for all other due diligence.

KYC controls usually include the collection and verification of identity documentation, screening against warning lists, customer risk assessment and investigations into customers’ financial transactions.

In keeping with the risk-based approach of decision making prescribed by FICA, LexisNexis SA introduced Lexis KYC an easy-to-use, intelligent, cost-effective solution that establishes and verifies the identity of clients.

The solution has a built-in risk assessment matrix – a virtual Know your Customer checklist - and enables clients to create their own compliance risk questionnaire. In addition, it records all interactions and verifications within the system and stores all documents safely in one place with an auditable compliance trail.

Rudi Kruger, general manager of Risk Management & International Online Services said while it is of utmost importance to comply to laws and regulations, it is also vital for business health to know relevant information about customers.

“Economic crime is a serious offence and those found to be in business with suspicious entities face massive fines and the threat of a prison sentence,” said Kruger. “The KYC verification steps are beneficial in that they enable companies to prevent involvement with criminal economic activities while fulfilling their due diligence obligations.”

Knowing your customer need not be a long, drawn-out process, said Kruger. “With handy online solutions to assist with due diligence, your business can avoid compliance risk by vetting and monitoring customers/clients as well as agents, partners, suppliers and other third parties in a quick and comprehensive manner.”

Highly useful in assisting with vetting is Lexis Diligence, a solution that helps users save time and money by performing enhanced due diligence checks on individuals, clients, partners and suppliers in-house. Designed to serve as an online enhanced due diligence researching tool, Lexis Diligence has the ability to uncover third-party violations before transactions are complete by providing access to over 40 years of archived comprehensive adverse news, sanctions and extensive warning lists, PEPs, director and shareholder listings, biographical references and directories, and comprehensive legal source material. It has the ability to monitor and assess potential security threats abroad by checking comprehensive country information and on the ground media reports.

“Whether it be verifying the identity of clients globally, or screening them against international sanctions, Lexis Diligence helps to protect your business from compliance risks. All of this comes in the form of an online tool that is easy to work with,” said Kruger.

Choose Lexis Diligence and benefit from increased business efficiency; less financial risk; ongoing regulatory compliance and reputation protection.

For more information, visit https://www.lexisnexis.co.za/nexisdiligence