According to the Basel Committee on Banking Supervision, banks should adopt a risk-based approach to customer due diligence, which includes four essential elements1:
A customer acceptance policy that defines the types of customers that are likely to pose a higher than average risk to the bank.
A customer identification program that collects and verifies information about the customer’s identity, beneficial ownership, and purpose of the account or relationship.
An on-going monitoring of high-risk accounts to detect and report any unusual or suspicious activity, and to keep customer information up-to-date.
A risk management program that ensures that the bank’s policies and procedures are implemented effectively, and that the bank’s staff are trained and aware of their AML/CFT obligations.
Therefore, documenting a customer acceptance policy and establishing on-going monitoring of high-risk accounts are the correct choices for the essential elements that should be included in the program based on Basel’s KYC principles.
1: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8.
