Know Your Customer (KYC)

Know Your Customer (KYC) is a critical component of AML/CTF compliance that requires businesses to verify the identity of their customers and understand the nature of their activities. In Australia, KYC obligations fall under the AML/CTF Act and are overseen by AUSTRAC.

KYC process components:

• Customer identification: Collecting and verifying identity documents (100-point check or equivalent)
• Customer due diligence (CDD): Understanding the customer's business, source of funds, and expected transaction patterns
• Enhanced due diligence (EDD): Additional scrutiny for higher-risk customers, including politically exposed persons (PEPs)
• Ongoing monitoring: Continuously reviewing customer activity against their profile
• Record keeping: Maintaining KYC records for at least seven years

Identity verification methods:

• Document-based: Government-issued ID (passport, driver's licence, Medicare card)
• Electronic verification: Using data sources like credit bureaus and government databases
• Biometric verification: Facial recognition and liveness detection
• Digital identity: Use of myGovID and other digital identity frameworks

Risk-based approach to KYC:

• Low risk: Simple identification and basic due diligence
• Medium risk: Standard identification with enhanced monitoring
• High risk: Enhanced due diligence, senior management approval, and more frequent monitoring
• Prohibited: Customers who cannot be adequately identified or who are subject to sanctions