CKYCA flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

KYC three components

Customer identification, customer due diligence, and ongoing monitoring. All three must operate together; a strong onboarding file without monitoring is an incomplete KYC program.

Risk-based approach

FATF Recommendation 1 requires controls proportionate to assessed money laundering and terrorist financing risk. Applying identical controls to all customers is a supervisory deficiency.

FATF Recommendation 10

Sets the customer due diligence standard: identify and verify the customer, identify beneficial owners, understand purpose and nature of the relationship, and conduct ongoing due diligence.

Trigger event

An event that requires refreshing or re-performing KYC, such as an ownership change, sanctions hit, unusual activity, or a lapsed periodic review.

Terrorist financing

The funding of terrorist acts or organizations, which can involve legitimately sourced money. Controls focus on destination, purpose, and association rather than only on the source of funds.

CDD four elements

Identify the customer, verify identity with reliable independent sources, identify beneficial owners, and understand the purpose and intended nature of the relationship.

CIP minimum data

For US individuals: name, date of birth, address, and identification number. Verification must occur within a reasonable time after the account is opened.

Identification versus verification

Identification collects customer data; verification corroborates it using documentary evidence such as a passport or non-documentary methods such as independent databases and credit bureaus.

Simplified due diligence

A reduced CDD standard permitted only for defined low-risk categories, such as listed public companies or certain government entities. Identification is still required.

Third-party reliance

Using another regulated entity to perform CDD steps. The relying institution retains full responsibility and must ensure records are accessible on request.

Customer risk rating

A documented score assigned at onboarding based on customer type, geography, product, and channel. It drives EDD requirements and monitoring thresholds.

Non-face-to-face risk

Onboarding without physical presence raises identity fraud risk. Mitigation includes biometric checks, liveness detection, and independent database verification.

Beneficial owner definition

The natural person who ultimately owns or controls a customer or legal arrangement. Common ownership threshold is 25 percent, with some jurisdictions using 10 percent.

Ownership and control tests

Two separate tests identify beneficial owners: the percentage ownership or voting threshold, and control by other means such as shareholder agreements or nominee arrangements.

Senior managing official

The fallback when no natural person meets the ownership threshold. The official is identified and the reasons no beneficial owner was found are documented.

Layered ownership tracing

Following ownership through each intermediate entity until a natural person is reached. Shell companies with no operations are a red flag requiring EDD.

Trust beneficial ownership

Identify the settlor, trustee, protector, beneficiaries, and any person exercising ultimate effective control over the trust or its distributions.

Ownership discrepancy red flag

A mismatch between declared ownership and registry or public data. It triggers enhanced due diligence and consideration of a suspicious transaction report.

EDD triggers

Politically exposed persons, high-risk jurisdictions, complex ownership, cash-intensive business, correspondent banking, and unusual activity all require enhanced due diligence.

Source of wealth

Explains how the customer accumulated total net worth over time, such as business sale, inheritance, or salary history. Distinct from source of funds.

Source of funds

Explains the origin of the specific money involved in a transaction or relationship, such as a property sale or bonus payment.

PEP definition

A politically exposed person, including family members and close associates, who holds or held a prominent public function. Risk persists after leaving office.

FATF grey and black lists

Grey list jurisdictions are under increased monitoring; black list jurisdictions call for counter-measures. Both drive geographic risk scoring and EDD.

Correspondent banking EDD

Assess the respondent bank's AML controls, ownership, and reputation. Providing services to shell banks is prohibited under FATF Recommendation 13.

Senior management approval

Required before establishing or continuing a high-risk relationship. The approval must be documented with the approver's name, date, and rationale.

Transaction monitoring layers

Three layers: automated rule or scenario monitoring, customer profile review, and periodic KYC refresh. Each generates alerts requiring documented disposition.

Alert triage

The process of investigating a monitoring alert and either closing it with documented rationale, escalating to a case, or filing a suspicious transaction report.

Structuring

Splitting cash transactions to stay below a reporting threshold, such as multiple deposits just under USD 10,000. It is a classic red flag.

Tipping-off prohibition

Staff must not disclose to a customer that a suspicious transaction report has been filed or is being considered. The report and its existence are confidential.

Sanctions screening

Checking customers and transactions against designated-person lists. A match requires blocking and reporting to the competent authority, separate from an STR.

Record retention period

FATF Recommendation 11 requires keeping CDD and transaction records for at least five years after the relationship ends or the transaction occurs, or longer if local law requires.

STR filing timeline

Suspicious activity must be reported promptly to the national financial intelligence unit, commonly within 30 days of detection, with extensions permitted in some regimes.

Three lines of defense

Business units own risk as the first line, compliance and AML operate as the second line, and internal audit provides independent assurance as the third line.