Draft Kyc Procedure

KYC / Customer Due Diligence Procedure

When to use this

Use this skill when:

• Drafting a new KYC/CDD procedure from scratch for a regulated entity
• Revising an existing procedure to reflect regulatory updates (FATF mutual evaluations, new national AML laws)
• Onboarding documentation for a specific customer type (individual, corporate, PEP, high-risk)
• Training and compliance-awareness material for staff

KYC procedures are legally mandated for financial institutions, money service businesses, designated non-financial businesses and professions (DNFBPs — lawyers, accountants, real estate agents above thresholds), and increasingly fintech platforms in all MENA jurisdictions.

Inputs

• Entity type and regulatory license category (bank, exchange house, fintech, DNFBP)
• Applicable jurisdiction(s) and regulator(s)
• Customer segments to be covered (retail individual, corporate, high-net-worth, correspondent institution)
• Existing risk appetite and risk-scoring model (if any)
• Whether procedure must comply with FATF Recommendations, or a specific jurisdiction's AML law

The eight-step KYC procedure

Step 1 — Customer identification

Collect sufficient information to establish the customer's identity before the business relationship begins.

Individual customers — collect at minimum:

• Full legal name (as per government ID)
• Date of birth
• Nationality and country of residence
• Residential address (physical — not PO box)
• Government-issued photo ID (passport, national ID, driving licence)
• Taxpayer identification number (where required)
• Source of income / wealth (for enhanced due diligence customers)

Corporate customers — collect at minimum:

• Full legal name + trading name
• Company registration number + jurisdiction
• Registered address + principal place of business
• Memorandum and Articles of Association (or equivalent)
• Certificate of Incorporation / Trade Licence
• Ownership structure chart (all layers to ultimate beneficial owner)
• Directors / authorized signatories list with ID for each

Simplified due diligence (SDD) is available in most jurisdictions for low-risk customer categories (listed companies, public authorities, regulated financial institutions in equivalent jurisdictions) — document the basis for SDD.

Step 2 — Independent verification

The identity information collected must be verified against independent, reliable sources. "Reliable" means:

• Government-issued documents (not photocopies of photocopies)
• Official registries (company registry, land registry)
• Regulated data providers (e.g., commercial databases) for corporate structure verification
• Face-to-face verification or certified equivalent (video KYC where allowed)

For remote onboarding (digital / eKYC): most MENA regulators now accept eKYC using document verification + liveness check, provided the solution meets the regulator's prescribed standards. CBUAE AML Standards 2021 and DIFC AML Module permit this.

Step 3 — Beneficial ownership (BO) mapping

Threshold: 25% ownership or control is the FATF-recommended threshold; some regulators use 10% for financial institutions.

For every corporate customer:

1. Map the ownership chain layer by layer until you reach natural persons who own ≥25% OR exercise control
2. If no natural person owns ≥25%, identify the natural person who exercises control by other means (board majority, veto rights, contractual control)
3. Where ownership is through a trust: identify settlor, trustees, and beneficiaries (or class of beneficiaries)
4. Verify BO identity to the same standard as the customer itself

Document the BO mapping with a signed declaration from an authorized officer of the customer. For complex structures (layers of holding companies, nominees), escalate to Enhanced Due Diligence.

Step 4 — Purpose and nature of relationship

Before opening the account / starting the relationship:

• Understand the intended purpose (trading account, investment, custody, financing)
• Expected transaction profile (volume, frequency, typical counterparties, geographic scope)
• Expected funding sources

Document these expectations in the customer profile. Transactions that deviate materially from the expected profile are a trigger for review.

Step 5 — Source of funds and source of wealth (high-risk customers)

Source of funds (SoF): Where do the funds for this specific transaction come from? Required for all transactions above thresholds and for high-risk customers.

Source of wealth (SoW): How did the customer accumulate their overall net worth? Required for Enhanced Due Diligence customers (PEPs, high-net-worth individuals, customers from high-risk jurisdictions).

Acceptable evidence: audited financial statements, employment contracts / payslips, property sale documents, inheritance records, company ownership proof. Verbal assertions with no documentary support are insufficient for EDD.

Step 6 — Sanctions screening

Screen all parties (customer, beneficial owners, authorized signatories, connected parties) against:

• UN Security Council consolidated list — mandatory globally
• OFAC SDN list (US) — mandatory for USD-clearing institutions and US-nexus transactions
• EU Consolidated Sanctions List — mandatory for EU-connected business
• UK HMT Financial Sanctions List
• Local lists: UAE CBUAE List, KSA SAMA List, Lebanon SIC Designated List

Screening must be:

• Performed at onboarding
• Re-screened at every material transaction
• Rescreened whenever lists are updated (automated real-time screening is best practice)
• Applied to all names, aliases, and transliterations (Arabic transliterations of names require fuzzy matching)

A sanctions hit requires immediate freezing and reporting to the relevant Financial Intelligence Unit (FIU). Do not alert the customer (tipping-off prohibition).

Step 7 — PEP screening and adverse media

Politically Exposed Persons (PEPs): individuals who hold or have held prominent public functions, their family members, and close associates.

FATF Recommendations require enhanced scrutiny of PEPs. "Foreign PEPs" (PEPs in another country) require EDD; "domestic PEPs" in many jurisdictions also require EDD.

For PEPs:

• Seek senior management approval before establishing the relationship
• Document the source of wealth to a higher standard
• Apply continuous monitoring (not just periodic refresh)

Adverse media screening: Search for negative news linking the customer to financial crime, bribery, corruption, terrorism, tax evasion, or fraud. Commercial adverse media screening tools should be used; manual Google searches are insufficient for regulated entities at scale.

Step 8 — Periodic review / refresh

The customer file must be kept current:

Refresh includes: re-verification of expired IDs, re-screening against sanctions and PEP lists, review of transaction history for consistency with expected profile.

Enhanced Due Diligence (EDD) triggers

EDD (deeper investigation, senior management approval) is required when:

• Customer is a PEP, PEP family member, or PEP associate
• Customer is from or transacts with a FATF high-risk or monitored jurisdiction
• Business is conducted non-face-to-face with unusual complexity
• Transaction has no apparent economic rationale
• Customer is a shell company or nominee structure without clear business purpose
• Politically or reputationally exposed transactions (government contracts, gaming, defense)

Risk-scoring framework

Assign each customer a composite risk score based on:

• Customer risk factors: type (individual/corporate), PEP status, adverse media, industry
• Geographic risk factors: nationality, country of incorporation, country of operations (FATF high-risk list)
• Product/service risk factors: cash-intensive, cross-border, high-value, anonymity potential
• Channel risk factors: non-face-to-face onboarding, intermediary introduced

Document the risk score in the customer file and review it at each periodic refresh.

Jurisdictional notes

Output format

A KYC procedure document should include:

1. Policy statement — commitment to AML/CFT compliance, regulatory basis, scope of application
2. Customer risk classification matrix — scored table
3. CDD checklist per customer type (individual / corporate / PEP / correspondent)
4. EDD checklist
5. Screening procedure — lists used, frequency, escalation on hit
6. Periodic review calendar and triggers
7. Record-keeping requirements — retention period (5 years minimum under FATF; 10 years in some jurisdictions)
8. Escalation and reporting chain — to Compliance Officer, then to FIU if applicable
9. Staff responsibility matrix — who does what at each step

Limits and escalation

• This skill assists with procedure drafting; final compliance sign-off requires a qualified AML compliance officer
• Sanctions hit handling and STR/SAR filing require legal and compliance review before action
• Cross-border KYC requirements may interact — engage local counsel in each jurisdiction
• Laws and regulatory guidance change frequently; verify currency of all regulatory references before publishing the procedure

Related skills

• [[draft-aml-policy]]
• [[review-aml-compliance]]
• [[draft-privacy-policy]]
• [[draft-dpa-gdpr]]
• [[draft-dpa-ksa-pdpl]]