Understanding KYCC: A Comprehensive Guide for Businesses

We all have some familiarity with KYC (Know Your Customer), however, have you ever thought about the dangers it poses to clients? The type of products and services you offer your clients will normally draw in specific types of clients, each with its own risks. As the number of customers increases, so do your organization's unique difficulties. This is where KYCC or Know Your Customer’s Customer comes into play. Some contend that KYCC rose to acclaim after the Panama Papers outrage. This blog will delve into KYCC and its benefits for businesses.

Belal Mahmoud

KYC Product Consultant

Let’s talk about KYC first.

KYC is now a standard practice for companies across all industries. There are four pillars of KYC.

1	Customer Identification	Verification of a customer using reliable data and documentation, such as name, date of birth, address, and taxpayer ID number
2	Customer Due Diligence	Conducting background checks to identify consumer risks, especially those related to illegal activities such as money laundering or terrorist financing. This typically involves screening applicants against PEP (Political Exposed Persons) and sanctions lists, as well as analyzing their beneficial ownership relationships
3	Ongoing Monitoring	Monitoring and testing customer data, particularly high-risk customers, for compliance and identifying new risks.

While traditional KYC is important for a secure onboarding process, Know Your Customer’s Customer (KYCC) is an additional safeguard. KYCC enhances your due diligence efforts to understand and manage your clients’ risk and protects your business.

What is Know Your Customer’s Customer (KYCC)?

Your relationship with your business customers is like a puzzle. You might see the pieces on the surface, your direct clients and their transactions. But at the bottom are links across the web: their partners, suppliers, customers, and stakeholders. The real challenge lies in understanding this complex web. That’s where the biggest risks hide. You can identify potential threats and keep your business safe by opening these connections.

Know Your Customer Customer refers to determining, validating, and looking into your customer’s client’s characteristics and interests. This is considered an additional level of compliance and a step towards creating a more comprehensive risk profile for your clients. KYCC goes beyond the usual KYC or KYB methods. This process is similar to Know Your Business (KYB). It is also important to identify Ultimate Beneficial Owners (UBOs) and verify their sources of income. Companies can prevent money laundering and other illegal activities by conducting KYCC.

KYCC is similar to KYC in many ways. However, instead of focusing on its customers, KYCC focuses on its customers’ customers. Just like KYC, KYCC involves three main steps:

1	Identity Verification	This step requires identity verification for each of the customer’s customers.
2	Due Diligence	The businesses thoroughly check sanction lists, account history, and other data to ensure that each customer’s client is not involved in any illegal activity.
3	Ongoing Monitoring	Implement measures to quickly detect and deal with illegal activities.

Difference between KYC and KYCC

The following infographic shows the main differences between the KYC and KYCC.

KYCC and Regulatory Compliance:

KYCC procedures are gaining ground as regulations tighten up, especially with recent directives like the 5th and 6th Anti-Money Laundering Directives in the EU and FinCEN’s Final Rule in the US. These changes show a growing emphasis on KYC, risk management, and following the rules. The 5th Directive, for instance, adds new rules for dealing with virtual currencies, high-value transactions, and keeping an eye on high-risk countries and important people. The upcoming 6th Directive will make companies more responsible for preventing money laundering and cybercrime. These updates highlight Europe’s push for tighter KYC rules. The FATF’s forty recommendations are key to establishing global standards against money laundering and terrorist financing. They are regularly updated to keep up with changes in the business environment.

Importance of KYCC in Businesses

KYCC plays a key role in KYC/AML compliance. It ensures that companies meet regulatory requirements and maintain the integrity of their operations. Businesses can benefit from KYCC in the following ways:

a. Ongoing Business Verification

Companies that provide KYC remediation services can assist with regular analysis of corporate client files to assess risks and adjustments to the organization’s infrastructure, managers, and beneficial owners. For companies, this also means constant AML surveillance.

b. Seamless KYB Onboarding

Financial institutions can benefit from simplifying their company onboarding procedures by using AI-based KYCC solutions. These technologies can simplify and speed up the integration process for companies, reducing overall integration costs.

c. Access to Global Business Registries

Some KYCC solutions facilitate access to up-to-date company data for business verification through international business registries, which eases the compliance process.

d. Frictionless API integration

Businesses only need to collect the necessary information to access data collected from multiple trusted sources using an API-integrated KYCC solution. This API integration makes it easier to onboard and manage corporate customers. With advanced AML/KYC solutions, companies can increase compliance, and efficiency, and save time and resources when customers are onboarded.

e. Remote Identification

Companies are now looking for automated, remote, and cost-effective software to perform essential business regulatory inspections. KYCC verification solutions are designed to reduce unnecessary time and money spent on compliance.

Bottom line

In conclusion, KYCC is swiftly becoming the standard practice, rather than just a recommendation. Businesses are now required to delve deeper into their client profiles and conduct thorough investigations. Simply relying on a client’s name, surname, and photo for onboarding is no longer sufficient. Until reliable databases are available, businesses need to request additional documentation from higher-risk customers to verify their Ultimate Beneficial Owner (UBO) structures. This shift towards KYCC signifies a fundamental change in the way businesses approach client relationships and underscores the importance of enhanced due diligence in today’s regulatory landscape.

Belal Mahmoud

Belal possess over 8 years experience in the KYC Identity Verification industry. He has consulted KYC solutions for over 20 new economy companies at DIFC and ADGM while ensuring a seamless technical integration and helped in jurisdictional compliance audits.