Types of Client for Onboarding in the KYC/AML World: A Comprehensive Guide

Client onboarding is a critical process in the Know Your Customer (KYC) and Anti-Money Laundering (AML) world. It ensures that institutions thoroughly understand and verify their clients to prevent financial crimes, including money laundering and terrorism financing. This article provides a detailed guide on onboarding various types of clients, including trusts, corporations, funds, banks, Non-Banking Financial Institutions (NBFIs), and Non-Operating Holding Companies (NOAHs).

1. Onboarding a Trust

Process and Steps:

1. Initial Assessment:

- Determine the type of trust and its purpose.

- Assess the risk associated with the trust.

2. Collect Basic Information:

- Trust deed or document outlining the trust’s creation and terms.

- Details of trustees, beneficiaries, and settlor.

3. Verify the Trust’s Identity:

- Validate the trust deed and related documents.

- Conduct background checks on trustees and beneficiaries.

4. Risk Assessment:

- Analyze the trust’s source of funds and purpose.

- Evaluate the potential risk of financial crime.

5. Ongoing Monitoring:

- Regularly review trust activities and changes in beneficiaries or trustees.

Document Requirements:

- Trust deed or equivalent document.

- Proof of identity and address for trustees and settlor.

- List of beneficiaries.

- Recent financial statements (if applicable).

2. Onboarding a Corporation

Process and Steps:

1. Corporate Information Gathering:

- Obtain the corporation’s registration documents.

- Collect details about the directors, shareholders, and beneficial owners.

2. Verification and Due Diligence:

- Verify the corporation’s registration and standing with relevant authorities.

- Conduct background checks on directors and beneficial owners.

3. Risk Assessment:

- Analyze the corporation’s business model, source of funds, and geographic risks.

- Assess the potential risks related to money laundering and other financial crimes.

4. Compliance Checks:

- Ensure the corporation complies with relevant AML/KYC regulations.

- Verify that the corporation has appropriate internal controls and procedures.

5. Ongoing Monitoring:

- Regularly review the corporation’s activities and financial transactions.

Document Requirements:

- Certificate of incorporation.

- Memorandum and Articles of Association.

- Identification documents of directors and beneficial owners.

- Proof of address of the corporation.

- Recent financial statements.

3. Onboarding a Fund

Process and Steps:

1. Fund Information Collection:

- Gather the fund’s offering documents and fund prospectus.

- Collect details about the fund manager and key personnel.

2. Verification and Due Diligence:

- Validate the fund’s registration and licensing with regulatory authorities.

- Conduct background checks on the fund manager and key personnel.

3. Risk Assessment:

- Assess the fund’s investment strategy, source of funds, and geographic exposure.

- Evaluate potential AML risks associated with the fund’s operations.

4. Compliance Checks:

- Ensure the fund adheres to relevant AML/KYC regulations.

- Verify that the fund implements proper AML controls and procedures.

5. Ongoing Monitoring:

- Continuously monitor the fund’s transactions and changes in key personnel.

Document Requirements:

- Fund offering documents and prospectus.

- Registration and licensing documents.

- Identification documents of fund manager and key personnel.

- Recent financial statements.

4. Onboarding a Bank

Process and Steps:

1. Bank Information Collection:

- Obtain the bank’s charter and licensing documents.

- Gather details on the bank’s ownership structure and senior management.

2. Verification and Due Diligence:

- Verify the bank’s regulatory compliance and standing.

- Conduct thorough background checks on senior management and major shareholders.

3. Risk Assessment:

- Evaluate the bank’s operations, source of funds, and geographic risk exposure.

- Assess potential risks related to money laundering and financial crime.

4. Compliance Checks:

- Ensure the bank adheres to stringent AML/KYC regulations.

- Verify the bank’s internal AML controls and procedures.

5. Ongoing Monitoring:

- Regularly review the bank’s transactions and compliance with AML regulations.

Document Requirements:

- Charter and licensing documents.

- Ownership structure documentation.

- Identification documents of senior management and major shareholders.

- Recent financial statements.

5. Onboarding a Non-Banking Financial Institution (NBFI)

Process and Steps:

1. NBFI Information Collection:

- Obtain registration and licensing documents of the NBFI.

- Gather details on key management and ownership structure.

2. Verification and Due Diligence:

- Verify the NBFI’s compliance with relevant financial regulations.

- Conduct background checks on management and major stakeholders.

3. Risk Assessment:

- Assess the NBFI’s business activities, source of funds, and risk exposure.

- Evaluate potential AML risks associated with its operations.

4. Compliance Checks:

- Ensure the NBFI has robust AML controls and procedures in place.

- Verify adherence to regulatory requirements.

5. Ongoing Monitoring:

- Continuously monitor the NBFI’s activities and compliance.

Document Requirements:

- Registration and licensing documents.

- Ownership and management structure documentation.

- Identification documents of key management and stakeholders.

- Recent financial statements.

6. Onboarding a Non-Operating Holding Company (NOAH)

Process and Steps:

1. NOAH Information Collection:

- Obtain incorporation documents and organizational structure.

- Gather details about the company’s ownership and management.

2. Verification and Due Diligence:

- Verify the NOAH’s registration and legal status.

- Conduct background checks on its directors and major shareholders.

3. Risk Assessment:

- Assess the NOAH’s purpose, source of funds, and any potential AML risks.

- Evaluate the risk associated with the NOAH’s investments or holdings.

4. Compliance Checks:

- Ensure the NOAH adheres to relevant AML/KYC regulations.

- Verify its internal controls and compliance procedures.

5. Ongoing Monitoring:

- Regularly review the NOAH’s activities and ensure continued compliance.

Document Requirements:

- Incorporation documents and organizational structure.

- Identification documents of directors and major shareholders.

- Recent financial statements and proof of funds.

Conclusion

Effective client onboarding in the KYC/AML world requires a thorough and systematic approach tailored to each client type. By following these guidelines, institutions can mitigate risks, ensure compliance, and foster a secure financial environment. Each onboarding process involves specific steps and document requirements that must be meticulously handled to meet regulatory expectations and safeguard against financial crime.

By Anand Rajpurohit