A question we’re often asked when preparing AML/CFT Programmes and Know Your Customer (KYC) policies and procedures is:

What do we need to find out when recording the nature and purpose of a customer’s business relationship with us?

As you know, there are two primary requirements when it comes to KYC best practice and standard customer due diligence:

  • Identity information about your customer that can be appropriately verified;
  • Information about the nature and purpose of your customer’s proposed business relationship with you, and enough information to know whether enhanced due diligence (EDD) requirements kick in.

You must find out this information as you onboard your customer. While you will get a better picture of a customer’s financial activity and risk profile once they are transacting with you, the intent of the requirements of the IVCOP and AML/CFT Act are that this happens before they start transacting.

The customer identity requirements get the most airtime within the clients we work with. There is something comforting about the fact that you can check a box when they are complete. 

Understanding and recording the nature and purpose of your customer’s intended relationship with you is much more qualitative. What you need to find out totally depends on your business type, and your customer types.

Here, we’ve pulled together a suggested list of KYC best practice dos and don’ts to make it a little clearer:

When determining the nature and purpose (N+P) of your customer’s proposed relationship with you
Do: Don’t:
  • Ask and record specific questions about their background and current financial activity. If they are an individual, ask about their current sources of income or short term financial goals. If they are a business, ask about the products and services they sell and how big their company is.
  • Ask and record the intended volume (how often), value (how much), and velocity (expected changes or variances) of the transactions they’ll undertake with you.
  • Ensure your onboarding checklists have specific prompts for your frontline staff to extract the right N+P information. Record these in your AML/CFT Programme procedures.
  • State the obvious or record generic information. For example, if you provide loans, the nature and purpose of a customer’s dealing with you will be a loan. Recording this provides no useful information and is unlikely to meet the standard CDD requirements.
  • Be tempted to ‘wait and see’ how customers transact with you before recording their N+P. Their transactions patterns should be analyzed in the context of their N+P.
  • Record their N+P on their onboarding forms that sit hidden in an electronic or hard copy folder that isn’t easily accessible to frontline staff.  

As always if you have any questions please don’t hesitate to contact information@fiducia.co.nz