Know Your Customer: A Necessary Plan
The USA PATRIOT act, Section 326 , applies to customers accounts opened on or after October 1, 2003. It requires banks and other financial institutions to have a Customer Identification Program (CIP) , which will apply to a risk-based approach at verifying customer provided information. The banks and other financial institutions are facing an ever increasing regulatory pressure to improve the Know Your Customer (KYC) programs, which not only confirms the CIP, but the sources and recipients of their funds.
Where many financial institutions are still struggling with the key requirements, like the CIP, many other financial institutions are improving documentation and KYC reviews for accounts opened before October 1, 2003, and match or exceed current practices and databases. This approach is comprehensive and ensures that organizations have a consistent institutional approach to the CIP, which will facilitate reviews in the future. It’s the absence of an effective CIP program that weakens critical components related to databases for certain accounts, which an institution’s anti-money laundering (AML) program, like the enhanced Due Diligence, becomes ineffective and creates a domino effect leading to non-compliance.
An effective Know Your Customer program must ensure that the institution has accurately confirmed CIPs, have properly considered a variety of risk factors and include processes to detect and deter potential suspicious activity. By implementing a KYC remediation project on a frequent basis will better enable a response to issues detected by the internal controls or when a regulatory agency orders an internal review.
KYC remediation projects include the involvement of senior management to establish an appropriate tone by clearly communicating individual responsibilities, priorities and accountability. Apply risk based approaches to monitor, identify and investigate all high-risk accounts. Use case-management technologies to plan a project, track and measure its progress and one that ensures individual accountability. Create tools to immediately identify customers utilizing high-risk products that will result in aggregation of dollar amounts. Finally, document all activities, this should include even the unproductive reviews concerning due diligence. As you can see, an effective KYC program involves a lot more than collecting documents and data, it requires a proactive atmosphere.