KYC – Know Your Customer

Which screenings and checks are mandatory in a KYC process?

Regardless of what industry your company is in, who the customer is and what your business does, some checks are musts to complete and document. They include:

1. Customer identification.

2. Customer tax domicile.

3. The nature and purpose of your business relationship with the customer.

4. Checking company representative's PEP (and RCA) status.

5. Checking company representative's sanctions lists status.

6. Checking the beneficial owners of the company.

7. Checking the structure of company activities to find out if they are of such a complex nature that one can suspect risk of money laundering or terrorist financing.

PEP check – Politically Exposed Person

The Money Laundering Act requires that you must check whether a customer or potential customer is a so-called politically exposed person, also called PEP. The persons classified as PEP are either a person in a politically exposed position, alternatively a close relative or close employee of a person with a high position within the state, state-owned companies or international organizations. Relatives or close associates are often referred to as RCA (Relatives and Close Associates). PEP is usually checked in relation to the company's representatives, such as board members and beneficial owners. Read more.

Sanctions Lists screening

Among other things, the EU, the UN and OFAC provide sanctions lists where people or organizations are listed that are associated with money laundering, terrorist financing, corruption and/or terrorism. Initiating a business relationship with individuals or organizations listed in a sanctions list is strictly prohibited. Furthermore, you must always report to the police if you are contacted by someone on a sanction list. Read more.

Checking beneficial owners

Collecting information on a company's beneficial owners is another key factor when it comes to the KYC process. A beneficial owner is a person who ultimately own or control a legal person (e.g. a company). A beneficial owner is always an individual person who is registered, in Sweden for example, with the proper authorities. When initiating a business relationship with a company or organization, you need to find out who owns or has a decision-making mandate of more than 25%. Exempted from the requirement to register beneficial owners include state or municipal activities, companies that are listed on a regulated market and individual companies. Read more.

Checking alternative beneficial owners

An alternative beneficial owner is someone who owns or controls a company, association or other type of legal entity (but not to the extent required to be declared a beneficial owner) or someone who controls the company through board membership. If a person owns less than 25%, the person is considered an alternative beneficial owner. Read more.

Identity check

The requirement to identify the customer means that the company must ask about the customer's name and other information that may be relevant, in order to then check this through some form of identity document. Examples could be a driver's license, a passport or another form of ID document.

In some cases, a check of eligibility as a signatory may also be relevant to check before a customer relationship is initiated, to ensure that an agreement is entered into with the right person.

KYC questions

Additional questions often need to be asked in addition to the data that can be retrieved about the customer. This can include questions such as the purpose and nature of the business relationship, additional information about the customer's business, countries in which the business is conducted, origin of capital, whether the business handles cash or not, etc.

At Roaring, we have developed ready-made question templates for customer knowledge based on industry, which can be used through API or our web platform. Read more.

Tax domicile

Tax domicile refers to the country where you live permanently, pay tax and declare your income; usually where you live or work. However, the tax domicile is not necessarily the same as the place where you are registered.

Other checks worth noting

KYC checks shall be based on risk assessment, both general and individual for each customer. It may therefore vary what is included in a KYC process.

Information that may be relevant to check other than the above, includes:

• Ownership structure and information

• Financial information

• Credit rating and assessment

• AML Registry

• Company activity