A KYC (know-your-customer) check is a core component of a regulated organisation’s due diligence obligations. It is the process through which a business verifies the identity of a customer, evaluates their potential risk, and determines whether they present a threat to the organisation’s regulatory standing or reputation.
In practice, KYC checks go beyond simply confirming an individual’s name and address. They examine whether a person or entity is sanctioned, politically exposed, linked to adverse media, or otherwise associated with activities that could lead to legal or financial repercussions. For many regulated sectors, this process is embedded in law, and failure to comply can result in substantial penalties.
Why Are KYC Checks Important?
KYC checks are a safeguard against a range of financial crimes, including money laundering, terrorist financing, fraud, and corruption. Their importance lies in:
- Regulatory Compliance: Meeting the requirements of frameworks such as the UK’s Money Laundering Regulations 2017 (MLR 2017), the EU AMLD, and global FATF recommendations.
- Risk Management: Identifying high-risk clients before entering into a business relationship and applying enhanced due diligence where required.
- Reputation Protection: Avoiding the reputational damage that comes with association to illicit activities, even indirectly.
- Operational Integrity: Enabling better decision-making and preventing disruption from sanctions breaches or enforcement actions.
For financial institutions and other regulated businesses, KYC is a required part of a proportionate, risk-based compliance framework, ensuring resources are focused where the risk is greatest.
What’s Included in a KYC Check?
The process can vary between sectors and jurisdictions, but a thorough KYC check typically involves multiple layers:
Identity Verification
Confirming the legitimacy of official identity documents such as passports, driving licences, or corporate registration certificates, often supplemented by biometric checks or utility bill verification.
Sanctions & Watchlist Screening
Cross-referencing individuals and organisations against global sanctions and watchlists, including OFAC, the UN, and EU lists, to ensure compliance with domestic and international restrictions.
PEP Screening
Identifying politically exposed persons, who may pose a higher risk due to their position and potential influence, and applying enhanced scrutiny to mitigate corruption risks.
Adverse Media Monitoring
Analysing credible news sources, industry publications, and investigative reports for any mention of criminal activity, regulatory breaches, or reputational concerns linked to the subject.
Ongoing Monitoring
KYC is not a one-time event. Continuous monitoring allows businesses to detect changes in a client’s risk profile, such as new sanctions listings or emerging negative coverage.
When Are KYC Checks Required?
Regulators expect KYC checks to be carried out at key points in the business relationship:
- Onboarding: Verification before opening accounts, processing transactions, or providing services.
- Trigger Events: When a material change occurs, such as new beneficial ownership, significant changes in business activity, or detection of suspicious behaviour.
- Periodic Reviews: At intervals determined by risk level, with high-risk customers subject to more frequent reassessment.
- Enhanced Due Diligence (EDD) Scenarios: When higher-risk factors are present, such as clients from high-risk jurisdictions or industries prone to financial crime.
These requirements apply equally to individuals and corporate entities.
Who Performs KYC Checks?
KYC obligations apply to a wide spectrum of regulated entities, including:
- Financial Institutions: Banks, credit unions, payment processors.
- Fintech and Cryptocurrency Platforms: Exchanges, wallet providers, and payment apps.
- Professional Services: Law firms, estate agents, and accountancy practices.
- Other Regulated Sectors: Insurance providers, gambling operators, and high-value goods dealers.
Even small and early-stage businesses operating within regulated sectors must implement KYC processes to remain compliant.
KYC Checks & Perpetual Due Diligence
Traditional KYC approaches often created a gap between verification points, leaving room for risk to evolve unnoticed. Perpetual KYC (pKYC) offers an alternative by incorporating continuous, automated monitoring into the compliance process.
This approach enables:
- Real-time detection of sanctions changes, new PEP status, or adverse coverage.
- Automated alerts to ensure timely action.
- Reduced reliance on outdated customer data.
- More accurate, up-to-date risk profiling.
pKYC is increasingly supported by regulators as part of a proactive, risk-based compliance strategy.
Support Your KYC Checks With LexisNexis
Nexis Diligence+™
Nexis Diligence+ unites identity verification, watchlist screening, PEP detection, and adverse media checks in a single platform. By accessing authoritative data from trusted global sources, compliance teams can streamline due diligence, ensure audit-ready documentation, and integrate screening directly into onboarding workflows.
Nexis Entity Search API
Designed for third-party and supply chain risk management, Nexis Entity Search API uses a PESTLE framework to assess risks across political, economic, sociocultural, technological, legal, and environmental dimensions.
Its capabilities include:
- Risk snapshots and trend analysis for active entities.
- Real-time RSS feeds for entity-specific news coverage.
- Visual risk categorisation by PESTLE factors.
- Identification of top news volume trends for targeted monitoring.
By consolidating market intelligence and risk signals into one dashboard, Entity Insight enhances the effectiveness of both onboarding and ongoing monitoring.
Legal & Regulatory Context
KYC checks are mandated under multiple legal frameworks, including:
- UK’s MLR 2017 and related FCA guidance.
- EU Anti-Money Laundering Directives (4th and 5th AMLD).
- Financial Action Task Force (FATF) Recommendations as an international standard.
- Sector-specific rules from domestic regulators such as the FCA, HMRC, and NCA.
Adherence to these frameworks is essential for avoiding penalties and maintaining market credibility.
Challenges in Conducting KYC Checks
Even well-resourced compliance teams face challenges, such as:
- False Positives: Excess alerts can waste resources and obscure genuine risks.
- Fragmented Data Sources: Multiple, unintegrated systems make it harder to get a complete risk view.
- Evolving Criminal Tactics: Financial criminals continuously adapt their methods to bypass checks.
- Cross-Border Complexity: Compliance requirements vary significantly between jurisdictions.
- Remote Verification Difficulties: Digital onboarding increases reliance on secure, accurate eKYC solutions.
What Happens If KYC Checks Are Not Performed?
Inadequate KYC can result in:
- Multi-million-pound fines and regulatory sanctions.
- Criminal charges for wilful negligence or complicity.
- Severe reputational damage and loss of stakeholder trust.
- Termination of banking relationships or supplier contracts.
Historical enforcement cases demonstrate how lapses in KYC controls can lead to long-term operational and financial fallout.
