Know Your Customer (KYC) is the process of verifying the identity of customers to prevent financial crimes such as money laundering, fraud, and terrorist financing. It’s a mandatory requirement, which makes sure that businesses understand their customers’ financial dealings.
In trade finance, KYC involves:
Customer Identification Process (CIP):
- Verifying company details (e.g., name, registration, ownership structure).
- Checking official documents like business licenses and tax IDs.
Customer Due Diligence (CDD):
- Assessing the financial health of the trading parties.
- Identifying the source of funds and the nature of the trade.
Enhanced Due Diligence (EDD) (for high-risk clients):
- Deep background checks for politically exposed persons (PEPs) or high-risk jurisdictions.
- Continuous monitoring of transactions.