An ultimate Checklist for KYC Compliance to protect financial institutions

While the digitization of the process of transferring and receiving money has evolved, it has certainly brought some setbacks with it, one of the biggest being the possibility of financial fraud and money laundering. KYC compliance is an extremely important aspect of any compliance program in order to lower the likelihood of financial fraud. One form of financial fraud often takes place when someone harms an individual’s financial health via identity theft. A more commonplace form of fraud includes when bad actors gain access and exploit an organization’s financial systems. This is why financial institutions and banks use KYC as a safety precaution in order to eliminate financial misconduct. This is known as Customer Due Diligence and KYC. We’ve compiled our suggested KYC compliance procedures into the 2021 Checklist for KYC Compliance below.


 KYC, or Know Your Customer, is the process of verifying a customer’s identity to ensure they are providing accurate personally identifiable information (PII) as well as in order to understand their past financial behavior with previous institutions or money service providers. This process helps to ensure that the financial institution’s services are not misused for identity theft, money laundering, and the funding of criminal organizations. kYC ensures that organizations are both compliant and that customers with a suspicious financial background are not approved for an account at the bank or financial institution. 

It is now mandatory for all financial institutions or banks to administer identity verification as part of their KYC compliance. This quick KYC compliance checklist will assist your institution in developing a KYC compliance program.

What Is KYC Compliance?  

A KYC verification is conducted by a bank’s system, or through IDMerit’s identity verification system, whenever a customer applies to open an account. To have a smooth transaction process, they must verify themselves by going through an identity verification process. This process entails the customer submitting certain verification documents that authenticate their identity and financial background. This identity verification process brings to light any risk of potential financial crimes and assists banks and financial institutions with taking the appropriate action depending on the risk profile.  

United States Drivers License and Social Security Card used in KYC compliance programs and identity verification.

How Does Proper KYC Help In Protecting Financial Institutions? 

The biggest approach to commit financial fraud and extortion is identity theft. People get away with committing these financial crimes by using a false or a fake customer background. This is where a robust Know Your Customer compliance program  severely limits the potential for fraud at the outset. During most KYC compliance programs, customers are asked to submit authentic documents such as passports, a UID (Unique Identification Number), or a copy of their most up-to-date utility bills or insurance plan. 

These documents act as identity and address proof and help the banks and financial institutions calculate the customer’s financial activities and any potential scale of risk they may pose. KYC compliance programs (which include ongoing monitoring) ensure banks and financial institutions remain alert about their customers’ risk profiles and is a process that segments suspicious customers or risky transactions. Banking is an industry with an innate danger of monetary fraud, so it is critical to perform a screening on customers to control and eliminate the potential of thefts. 

The Updated 2021 KYC Compliance Checklist 

These verification documents construct a customer’s financial profile for a bank and proper identity validation and verification processes can root out fraudulent ID cards, utility documents that have been tampered with, or all together forged documents. 

Every bank and financial institution follows different customer verification procedures, some require online identity verification while some require physical submission, therefore the documents required for identity verification are different. However, the essential documentation required per the 2021 KYC compliance checklist are as follows: 

(POI) Proof Of Identity: 

  • A UID/passport, driver’s license, or a voter’s ID card. 
  • A PAN (Permanent Account Number) card with a picture matching the customer. 
  • A current ID card issued by the State. 
  • Any valid Debit or Credit card issued by a bank. 

(POA) Proof Of Address:  

  • A copy of utility bills such as electric bills with a verifiable address  
  • Visa/Driver’s License with a digital picture. 
  • A copy of a registered sale agreement or lease for residence. 
  • Any identification document in the name of one’s spouse. 

identity documents

What Are Various Types of KYC Verification? 

To make the process more convenient, there are two types of KYC verification that many banks and financial institutions follow: 

Online or eKYC Submission

The primary type of KYC verification follows an online identity verification where the customer submits their required documents online. This is fast and the most digitally modern way of document submission. This process typically uses OCR (Optical Character Recognition) technology that banks and financial institutions use to sort and extract verification data from the submitted documents. Typically, IDMerit also includes advanced security measures to identify fraudulent documents including identifying biometrics and verifying the existence of specialized features specific to each type of identification (passport, ID card, etc.). 

In-Person Submission 

This KYC verification process takes place when a customer submits their identification documents to the bank in-person. A copy of all documents is required which need to match both the image on the identification card for in-person submission. Some banks and financial institutions also require document submission for KYC through video where the customer’s presence is needed in order to verify their identity and address. This is typically done through a process known as liveness detection which removes the potential for impersonation or fraud. 


3 Fundamental Components For A KYC Compliance Process 

The process of Know Your Customer compliance is based on three components or steps. Depending on a customer’s risk level or past transaction history, there can be changes in the manner of the screening’s intensity. While a basic KYC compliance program will work exceptionally well for a customer with minimal to average transactions, a more moderate screening will be required for someone with business-level transactions. This is also true with on-going monitoring which is scaled up for customers with a higher risk profile or who are Politically Exposed Persons (PEP).  

  1. CIP (Customer Identification Program) 

The first and foremost step to conducting a KYC compliance process is identifying the customer and their financial background. This is a defining component in any KYC process that is necessary for all banks and financial institutions to carry out. It is part of the law presented in the Patriot Act, 2001 that requires all individuals with bank accounts to undergo a CIP to have their backgrounds recorded and examined. 

Since the latest 2021 KYC compliance is approved by the FATF (Financial Action Task Force), a CIP is made mandatory for all banks and financial institutions to administer against their customers. Not only does this program help these financial institutions identify their customers but also assists in monitoring their financial activities of the next steps in a KYC compliance process.  

While it is approved by FATF to conduct a CIP, it falls under the banks and financial institutions to decide its level of verification — deciding upon the proof documentation to ask from their customers. However, the essential prerequisites that any bank must ask from its customers to open an account follow:  

  • Customer name  
  • Date of birth  
  • Permanent address  
  • A UID 
  • Copy of utility bills 

To ensure a CIP’s success, the bank must conduct a thorough examination of these documents in terms of validity, authentication, and relevance. Such prerequisites are also required when conducting an AML (Anti-Money Laundering) procedure. 


  1. CDD (Customer Due Diligence) 

Perhaps the most cumbersome part of a Know Your Customer process for banks in determining the reliability of their customers. It is crucial for banks to decide whether they can trust a customer. This process of determination connects with the CIP conducted before to ensure a potential customer is trustworthy. CDD helps the banks and financial institutions stray clear from dealing with thieves and possible frauds. There are three levels of the Customer Due Diligence process that depends upon the customer: 

  • SDD (Standard Due Diligence) is initial information required by customers that usually indicates any initial risks. If the chances of financial fraud or tax evasion are low then a full CDD isn’t required here.  
  • CDD (Customer Due Diligence) is compulsory information that all customers must submit to undergo a financial activity examination that assesses any further potential risks related to the customers.  
  • EDD (Enhanced Due Diligence) is any extra information that a bank may decide is compulsory for their respective KYC process. This information is usually asked by customers with higher-risk profiles to give a more profound insight into their financial activities.  

Some pragmatic steps that may assist banks and financial institutions to conduct their CDD process include: 

  • Banks may inquire about the nature of a customer’s business and their scale of transactions to gain an insight into their business financial activities.  
  • While confirming or checking a customer, banks can classify their risk-profiles and characterize what kind of customer they are. 
  • If dealing with a higher-scale customer, banks can ask them to submit any business verification records they find necessary to keep the CDD process updated. 

Because this is such a detailed process, the identification of any suspicious financial activity can be pointed out easily even if it is subtle. Tracking all the CDD and EDD performed on every customer is essential to ensure the KYC compliance process’s success.  

  1. Continuous Customer Monitoring  

Once all is said and done, a Know Your Customer compliance process keeps on its vigilance until a customer suspends their bank account.  It’s insufficient to simply check a customer once, hence banks use a vigilante program to screen their customers continuously. This continuous screening allows the bank to keep an eye on customer’s every single financial transaction and alerts the bank when it senses something suspicious. 

Once again, every bank or financial institution follows a different program of this conscious monitoring, however the variables they look out for remain the same, such as:  

  • Elevation in transactions 
  • Frequent offshore or out of region transactions. 
  • Any transactions made to the account by an unidentified party.  

Continuous Customer Monitoring is a tedious part of a KYC compliance process, however, due to its constant surveillance, even a little spike of financial activity that can lead up to financial theft is detected. This continuous monitoring is all digitized and provides uninterrupted vigilance to each customer, hence the reason why a KYC compliance process remains a successful counteractive solution to all types of financial fraud.  

Final Thoughts : KYC Now & Looking Towards The Future

As banks and financial institutions shift their services online, it is becoming easier and easier for online hackers and thieves to find better approaches to commit financial fraud. Because of that, financial specialists felt the need to discharge new procedures to resist these fraudulent approaches. A KYC procedure works both ways, not only does it protect the bank’s services from getting misused, but it also protects the customer’s financial health. 

As 2021 is progressing, it has now become a high priority for financial institutions and banks to have a viable KYC compliance program to remain consistent with their customers and alleviate the danger of financial extortion. While every financial institution is different, the above-mentioned KYC compliance program and checklist remain the essential vigilance process that will assist them with conducting a proper identity verification program just the same.

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Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the on-going development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business.

Jay Raol
Jay Raol

Jay Raol has been a Media Manager, Entrepreneur, Political Analyst and an Environmentalist. He aspires to climb the mighty Himalayas, and learn a new language every year. He lives in the beautiful city of Carlsbad in Southern California and owns a great collection of books. He is on schedule to publish his first book; 'Thou Art, Dope'. Co-founded two companies that provide futuristic solutions to the world while being quite enthusiastic about helping and investing in technology startups.

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