Know Your Customer or KYC is an important term that refers to the know-your-customer principle. The process of inventorisation, identification and verification of the customer before and during the process of conducting business. But what exactly is meant by Know Your Customer, KYC and CDD?
The term Know Your Customer/KYC can be thought of as a shipping container. Customer Due Diligence (CDD) belongs inside this container. Customer Due Diligence or CDD is part of the Know Your Customer inventorisation. It is the process by which relevant information about the customer is collected and evaluated in terms of potential risk to the organisation, money laundering, and the financing of terrorist activities. It applies to financial services, real estate, law, trust offices, accountants and tax consultants, amongst others. SCOPE has a separate KYC portal. This portal enables the customers and advisors of asset managers to exchange information pertaining to the client inventorisation process in a user-friendly, efficient and secure manner.
KYC and CDD are often regarded as the same thing, but there is a difference.
The difference: CDD is the process by which relevant information about the existing or new customer is collected and then evaluated for potential risks to the organisation in terms of the Money Laundering Terrorist Financing Prevention Act (Wwft).
KYC is about safeguarding the quality of advice given to the client in terms of MiFID II and MiFIR. A well-executed Know Your Customer and Customer Due Diligence process ultimately results in a good investment portfolio for a cleared and verified customer, tailored to the risk profile of the customer or customers.
Both CDD and MiFID II KYC are part of the Know-Your-Customer Process.