Insights |Investigations

30th June 2022

Know Your Customer: An investigative approach

On 17th May 2022, the Gambling Commission imposed fines that totalled £675,000 on two gambling businesses: Jumpman Gaming Limited and Progress Play Limited.

The cause? These businesses allegedly violated UK social responsibility and anti-money laundering laws.

Anti-money laundering (AML) laws regulate a wide range of institutions in addition to casinos.

The laws aim to prevent illegal financial activity by mandating security measures – including the automatic investigation of agents involved in transactions with high money laundering potential.

One of these mandates is the ‘Know Your Customer’ or ‘KYC’ standard.

But what is Know Your Customer?

Know Your Customer (KYC) is a standard set of procedures designed to mitigate legal risks through investigation. In this guide, discover what KYC is in detail, how it works, and how effective KYC compliance can empower your organisation.

KYC: Know Your Customer (overview)

It is difficult to overstate the importance of KYC. It is a standard enshrined both in law and in the financial industry. It enables effective measurement of risk tolerance, financial position, and investment knowledge.

All of this should inform a financial advisor’s investment strategy for a given client – and whether it’s wise to take that person (or organisation) on as a client at all.

What does KYC mean?

KYC is an initialism that stands for ‘Know Your Customer’. The KYC standard outlines a set of processes and procedures applicable institutions must comply with.

These processes share the aim of developing a complete profile of an individual or institution trying to invest or transfer significant monetary sums.

What is the purpose of KYC?

The immediate purpose of KYC procedures is the development of a profile of high-risk customers.

It sets parameters for additional verification of high-risk individuals as they become clients of financial institutions. It also requires the verification of any beneficial owners of properties, businesses or organisations in their role as clients.

This profile is a tool to keep track of high-risk individuals, so law enforcement can effectively prevent money laundering, bribery and financial crimes against the state.

The risks KYC works to mitigate are potential threats to the individual, community and state. These are the risks that a financial transaction:

  • may facilitate crime.
  • may illegally disguise offshore accounts to evade taxation.
  • may subvert legal or democratic processes through bribery.

Who is most affected by KYC regulations?

In the UK, anti-money laundering (AML) and anti-bribery laws primarily target those whose wealth, power or status makes them more likely to engage in illegal financial transactions. Those most affected include:

  • High-value customers (HVCs)
  • Politically exposed persons (PEPs)
  • People with significant control (PSCs) of companies.

An HVC is a client whose account makes a significant impact on a company’s bottom line. A PEP is someone entrusted with public office or someone who serves a public function.

A PSC is someone who owns and controls a company or organisation. People with significant control must be registered with the PSC database in the United Kingdom.

What does ‘enhanced due diligence’ mean in the context of KYC?

Enhanced due diligence, or EDD, is a detailed risk assessment of a customer. The results of the risk assessment are compiled into a report. Know Your Customer analysts perform these assessments and write these reports.

Which industries must comply with Know Your Customer regulations?

In any industry where significant monetary transactions are commonplace, there’s a greater risk of money laundering and financial crimes. Organisations that must comply with UK KYC regulations include:

  • Financial institutions
  • Real estate agencies
  • Payment processing companies
  • Gaming and gambling spaces
  • Solicitors and law firms
  • High-value dealers (auctioneers, etc.).

KYC standards are also built into other regulations and laws.

For example, the Medicines and Healthcare products Regulatory Agency (MHRA) in the UK and the Food and Drug Administration (FDA) in the US require pharmaceutical manufacturers to maintain current good manufacturing practices (CGMPs), which incorporate KYC processes.

What do Know Your Customer checks entail?

There are four aspects of Know Your Customer assessments. These are:

  1. Corporate document investigation
  2. Identity evaluation
  3. Strategic intelligence-gathering
  4. Analysis and reporting.

The specific requirements and procedures for each element vary by the nature and nationality of the customer in question.

Investigate corporate financial and legal documentation

A KYC check will examine certain legal documents for veracity and consistency. The Ministry of Housing, Communities, and Local Government published guidance on the KYC standard – as applied to corporate and organisational clients – in 2016.

It notes the necessary and acceptable documents for verification, which differ for UK-based companies and non-UK companies.

Evaluate proof of identity (individual)

KYC assessments verify identity with ID documents. These can include:

  • Full UK passport that has the machine-readable zone
  • Full photo card driving licence
  • Photo card (national identity card) that has the machine-readable zone.


Know Your Customer analysts use a range of strategies to gather information. They also utilise computing and software tools to aid investigations into customer risk and potential money laundering.

These tools can be open-source intelligence-gathering programmes. Or, they might be sophisticated data analytics tools.

Today, KYC analysts can even perform due diligence extensively by searching the dark web. These searches are powered by machine learning algorithms that recognise patterns of behaviour.

How does a Know Your Customer analyst enhance due diligence?

A Know Your Customer analyst enhances due diligence throughout the life of the customer-institution relationship. Applicable organisations typically standardise reviews of all new customer accounts, to ensure KYC compliance.

Analysts also periodically re-evaluate high-risk accounts. This involves compiling a list of transactions, and then analysing associated risk factors, which include:

  • Analysis of unexpected activities.
  • Verification of the source of funds.
  • Verification of use of funds.
  • Identification and assessment of risks inherent to:
    • Products and services
    • All entities involved in the transaction
    • Geographic location.

Finally, KYC analysts observe and record trends in customer behaviour, and they investigate notably suspicious activity. Analysis of customer behaviour factors in general market trends, and a KYC analyst will note those.

Know Your Customer risk and compliance analysis

An organisation may hire a KYC analyst to assess its own risk of KYC non-compliance. The analyst may evaluate on organisation’s policies, security, and new customer processes.

Then, the analyst can compile a report. This can empower an organisation to develop thorough risk-mitigation and security processes. KYC risk reports can facilitate an investigation, and some – though certainly not all – are available to the public.

Protect your organisation with KYC

Ultimately, Know Your Customer checks keep financial institutions, high-value dealers and other agents involved in large-scale monetary transactions safer. KYC checks keep companies legal, and they protect our communities from dangerous, illegal activities.

One of the best routes to KYC is enhanced due diligence. If your organisation needs a thorough way to mitigate risks imposed by customers, use EDD services created by experts.

To find out more about ESA Risk’s Enhanced Due Diligence services, please contact Mike Wright, Risk Management and Investigations Consultant, at, on +44 (0)843 515 8686 or via our contact form. You can also find more information on our Enhanced Due Diligence page.

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