Know Your Customer – What is Due Diligence?

Know Your Customer – Compliance & Regulations

The USA Patriot Act was was passed in 2001 in response to the attacks of 9/11 and requires that all financial institutions create anti-money laundering programs to fight schemes that may be financing terrorist activities. Not only are financial institutions required to confirm client identities, but they must also keep a detailed analysis of how they do it. “Due Diligence,” a key part of the Know Your Customer (KYC) program, is a term used to describe how client identities are confirmed, which typically includes a reviewing credit and financial history, character, professional experience and reputation.

Know Your Customer – Conducting Background Checks

It’s one thing to show up on a police report, but it’s quite another to have connections to a prominent foreign dignitary who may create a conflict of interest for the financial institution. There are hundreds of watch lists, which could be useful in researching character and reputation, but not all financial institutions have the resources to pour through these lists. The median financial institution in the US has just 40 employees, and must comply with the same regulation – and the due diligence it takes – that the large banks do.

Know Your Customer –  Due Diligence Process

To comply with the KYC regulations, it’s not enough to wait until a potential customer shows up on a watch list or is formally convicted of a crime. For character and reputation to be thoroughly researched, it’s important to see pertinent information regarding a person or company as it happens. A negative news search engine is a great tool to help align with your KYC compliance and anti-money laundering regulations. It provides search results based only on negative terms associated with an entity. For example, if you search “ABC Company,” and that company is under investigation for fraud, the search results will display “investigation” results associated with that company name on news sites, watch lists, etc.

Know Your Customer – Partner with Source Technologies

As more KYC compliance and anti-money laundering regulations are created, it will become increasingly difficult for small banks to keep up with Due Diligence requirements. With an anti-money laundering software solution from Source Technologies, you can protect against money laundering and comply with the KYC regulations. Contact ustoday to learn which solution is right to meet your compliance and regulation needs.

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