How to Create a Know Your Customer (KYC) Checklist

KYC checklist

Businesses need to know who their customers are. But what does a business need to do to truly know their customers are who they say they are?  

This is the value of a KYC checklist. A checklist outlines the verification process that a business uses. Essentially, it’s a list of the documents the business collects when onboarding a new customer. 

Let’s take the example of the bank. To open a bank account, you need to provide ID documents. Therefore, the KYC checklist that a bank creates will include exactly the type of documents it accepts to verify your identity.  

KYC checklists vary by industry. For example, a company selling age-restricted products may require a different set of documents.  

Why is a KYC checklist so important? 

Customers play a vital role in building a company. They get full access to your products and services, including age-restricted products and data-sensitive information. However, the wrong types of customers can destroy a company’s reputation. 

Therefore, a KYC checklist helps a business secure their operations and ensure they serve only legitimate customers.  

What Is a Know Your Customer Checklist? 

A KYC checklist defines the data and documents a business collects to:  

  • Verify the customer’s identity  
  • Detect imposters  
  • Assess fraud risks to prevent financial or legal issues.  

The biggest challenge is identifying and verifying your customers’ IDs to ensure they are who they claim to be. This is particularly important for online businesses, large-scale companies, or data-sensitive, age-restricted, and government agencies. A KYC checklist ensures: 

  • Regulatory compliance 
  • Trust, privacy, and security of conducting business 
  • Prevention from fraudulent activities (by flagging scammers instantly) 
  • Authentic transactions 

Let’s explore the importance, what should be included in a KYC checklist, and how to create an effective KYC checklist. 

What is the Importance of Know Your Customer (KYC)?

1. Regulatory Compliance

It is vital to implement KYC procedures before conducting business transactions. This safeguards your business from legal complications such as identity fraud and works within the required regulations. 

For example, government and financial regulatory bodies have a strict KYC format to limit financial crimes and ensure customer privacy. This also helps financial institutes to improve their operations and minimize money laundering, terrorist financing, and fraud.  

The basic KYC requirements of a bank are: 

  • Full legal name as written on government-approved ID cards 
  • Date of birth (in MM-DD-YYYY format) 
  • Current residential address (Can be verified by the bank) 
  • Government-issued ID proof such as Social Security Number

2. Risk Mitigation

KYC helps organizations assess risk and mitigate threats to create a safer and secure business environment. KYC can identify fraudulent profiles and high-risk individuals, and it helps the business act appropriately before the situation worsens.

3. Fraud Prevention

Have you recently tried to transfer money through a bank’s web or mobile app? After entering the other party’s account details, it asks if you want to verify the account number. OR it reflects the name of the account holder.   

This step prevents fraudulent activities and ensures safe transactions. It confirms the legitimacy of the customer and reduces the risk of losing money or account takeovers.

4. Reputation Management

Every business works to create a brand name and reputation. Any activity that threatens the safety of customer details risks the brand’s reputation. Hence, creating a secure platform requires trust, strong KYC practices, and commitment from the company. It also ensures customer loyalty. 

What Is KYC Identity Verification? 

KYC identity verification confirms the customer’s identity by cross-verifying provided data with various governmental databases. 

Here’s a real-world example: 

Chris is applying for an online loan. He needs to enter his financial requirements and personal details (name, number, address, ID number, etc.) and attach proof of his identity.   

The loan department will cross-check his details and attached documents with their database to ensure the customer’s authenticity. Once satisfied, the agency will release the loan amount to Chris’s account. 

KYC identity verification includes: 

  • Customer Information: Customers must complete the KYC checklist before conducting business. This generally includes name, date of birth, address, contact details, and alternate contact information. 
  • Document Verification: After collecting and storing information, customers need to provide identity documents like SSNs, passports, driver’s licenses, or government-issued IDs.  

Quick Note: Some companies use Biometric Verification, such as facial recognition or fingerprints, to confirm the customer’s identity. 

  • Watchlist Screening: While cross-checking and authenticating the customer information, the system would flag the profile if it has committed a previous crime. 

What Elements Should You Include in the KYC Checklist 

An effective KYC checklist can ensure government compliance and trust with customers. It should include:

1. Customer Information

  • Name (Full legal name)
  • Date of Birth
  • Address (Current residential address)
  • Contact Information (such as mobile number, alternative number, and registered email address)

2. Document Verification

  • Proof of Identity (such as passport, Social Security Number, or Driver’s License)
  • Proof of Address (It should match with the provided address)
  • Real-time Selfie or Upload the latest photograph

3. Biometric Data

  • Fingerprints Identification (primarily used to unlock mobile phones)
  • Facial Recognition (mainly used to access data-sensitive or age-restricted companies)

4. Cross-referencing and Screening

  • AML (Anti Money Laundering) Screening
  • Cross-Border KYC Compliance

5. Risk Assessment

  • Analyze previous transaction history (to ensure authentication)
  • Cross-referring (for example, when companies contact previous employers to ensure correct profiles).

6. Constant Monitoring

  • Transaction Monitoring (to ensure no unauthorized access to their customer’s accounts)
  • Periodic Reverification (to ensure customer information and documentation haven’t been misused)

7. Maintain Records

  • Document Retention (to reduce the number of times customers must enter details)
  • Compliance Documentation (to comply with regulatory requirements)

Examples of KYC Checklist

Now that we’ve discussed the importance and components of a KYC checklist, let’s look at some good examples: 

1. JotForm 

Source: jotform

2. Clustdoc 

Source: clustdoc

3. U.S Bank KYC 

Source: Us bank

Banks have their own KYC format that fulfills all the anti-money laundering (AML) requirements 

Know Your Customer Compliance 

KYC compliance is not a one-time task; it’s an ongoing commitment to protect your business from financial crimes. Additionally, it helps maintain business relationships and enhance customer experience.  

A robust Know Your Customer (KYC) software can sort, streamline, and manage your identity verification processes. This ID verification tool can ensure enhanced security and compliance with regulatory requirements. 

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Article Author Details

Julia Hendon