KYC (Know Your Customer) protocols are well-known and well-regulated. But have you thought about the risks your customers’ customers might present to your business? The products and services your customers provide will determine the type of clients they attract and, therefore, what unique risks you might face.
By implementing Know Your Customer’s Customer (KYCC) processes, you can proactively identify potential threats and ensure your business is well-protected against money laundering, fraud, the financing of terrorism, and other financial crimes.
What is Know Your Customer’s Customer (KYCC)?
KYCC is an additional compliance measure beyond traditional KYC. It’s similar to Know Your Business (KYB) as it involves a close analysis of the organizations you do business with. However, Know Your Customer’s Customer goes one step further by looking at “second-tier business relationships.”
With KYCC, you don’t only assess your business clients. Rather, you look beyond to see who they do business with — particularly their customers and business partners. The goal of KYCC is to:
- Confirm that businesses you work with are who they say they are. By verifying their accounts, you can be more confident that they’re transacting with legitimate customers for legitimate reasons.
- Identify if any of your customers are providing services to shell companies or other high-risk entities that may be involved in financial crimes or other illegal activity.
Why is KYCC important?
KYCC measures can protect your business, customers, and the global economy against tax evasion, terrorist financing, money laundering, and other illicit financial activities. These crimes can run rampant without processes to detect and prevent them.
At the time of publishing, Know Your Customer’s Customer procedures are not yet widely regulated. However, they are becoming more of a common standard. The 5th and 6th Directives in the EU and FinCEN’s new Final Rule in the US all indicate a deepening interest in KYC, risk, and compliance.
As lawmakers continue to recognize the importance of KYCC, it’s expected that more regulations will be announced. By proactively implementing KYCC procedures, you’ll reduce the risk to your business and won’t have to rush to put compliance measures in place when the time comes.
Even if legal repercussions aren’t a concern, KYCC can help protect your business’s reputation. If customers discover your business has facilitated illegal activity, they may be less inclined to work with you — and by implementing KYCC protocols, you’ll be able to identify these problems and reduce your risk.
KYCC is particularly important for high-risk industries such as finance. That said, any business can benefit from the reputational and preventative impacts of KYCC.
What does KYCC look like?
KYCC looks a lot like KYC. The difference is that your customer’s customers, not your customers themselves, are the subject of verification. Like KYC, there are three essential steps in KYCC:
- Identification, where you identify and verify the identity of each of your customer’s customers.
- Due diligence, which involves checking sanctions lists, account history, and other information to ensure each customer’s customer isn’t involved in any illegal activity.
- Ongoing monitoring, where you implement measures to catch illicit activity — and take action to handle it accordingly.
To begin KYCC, you’ll first need to receive a list of customers from each of your customers. If they’re hesitant to share this information, you may have to take the time to explain the value of the additional paperwork.
Then, you’ll need to collect the necessary information to run KYC checks on each of these individuals. This may involve compiling and cross-checking data from a number of different sources.
As your customers conduct business, they’ll inevitably add new clients to their roster. It’s essential that KYCC becomes an ongoing process so your business can detect any suspicious activity as quickly as possible.
Despite the effort, a thorough KYCC process improves both your and your customers’ businesses. It helps raise business standards, establish improved compliance measures, and increase trust and safety. Ultimately, working together on KYCC can build an excellent reputation for both you and your customer.
Turning KYCC from burden to benefit with Persona
To Know Your Customer’s Customers, your business must access and analyze a lot of information from various sources. When done manually, this process is extremely time-consuming and complex due to the sheer amount of information out there.
To properly and efficiently implement KYCC, you’ll need automated software like Persona. On one simple platform, you can gather information about your customers and their clients — and choose from our extensive library of identity verification methods to customize the process.
This streamlined verification process can automatically cross-check data, highlight red flags, and otherwise provide the information your team needs to make timely and effective decisions that will protect your business.
Protect your business with proactive implementation
KYCC measures are growing in importance, as are other protocols that highlight compliance and prevent risk. In the near future, Know Your Customer’s Customer may be legally regulated, not just recommended.
By putting KYCC processes in place now, you can proactively protecting yourself against fraud, money laundering, and other financial crimes. You’ll also guard your business against reputational risk and may be able to avoid costly legal troubles in the months and years ahead.
Get a free custom demo to discover how your business can leverage Persona to meet existing KYC requirements and implement KYCC measures that will benefit your customers and your business.