What Does KYC Mean?
A central element of these due diligence obligations is the KYC process ("Know Your Customer"). Its purpose is to clearly identify clients, determine beneficial owners and ensure that business relationships are documented in a transparent and traceable manner. This article explains which steps form part of the KYC process, where mistakes occur most frequently and how legal support can help companies fulfil their obligations completely and efficiently.
The Most Important Steps in the KYC Process
The KYC process is designed to ensure that companies know their clients, clearly identify beneficial owners and detect suspicious circumstances at an early stage. The documents required in each individual case depend on the type of client and the nature of the business relationship. However, the process generally follows the same basic steps:
1. Collect Basic Information and Verify Identity
The process begins by collecting the most important information about the client. This includes their name, date of birth, nationality, address and valid identification documents such as a passport or identity card. This information forms the basis for all subsequent checks.
2. Identify Beneficial Owners
The person or company entering into a contract is not always the actual beneficial owner. It is therefore necessary to determine which natural person is economically entitled to the assets or ultimately controls a company.
For example, a limited liability company may
open a bank account even though its shares are actually owned by one individual or several shareholders. As part of the KYC process, it is therefore necessary to establish who stands behind the company and who exercises effective control over it.
3. Understand the Business Relationship
The next step is to determine why the business relationship exists and what activities the client carries out. This includes examining where the assets originate and whether the planned transactions are consistent with the client's business model. This makes it possible to identify unusual or contradictory information at an early stage.
4. Verify the Information
Finally, the information collected is compared with official registers and external databases. Depending on the applicable requirements and the client's risk profile, this may also include screening against relevant sanctions lists, particularly sanctions applicable in Switzerland. The KYC process can only be completed once the information has been found to be plausible and complete.
If the necessary investigations give rise to a reasonable suspicion within the meaning of Art. 9 AMLA, the financial intermediary must immediately report the matter to the Money Laundering Reporting Office Switzerland (MROS).
Which Documents Are Required for the KYC Process?
The documents required depend on the type of client. For private individuals, the primary documents are identification documents and, depending on the circumstances, proof of address. Any additional information or supporting documents required will depend on the nature and risk profile of the business relationship.
Companies must additionally provide evidence of their corporate structure, for example through an extract from the commercial register and information about their beneficial owners.
In the case of trusts or foundations, further documentation is often required to clearly establish who actually controls the assets and who benefits from transactions.
Special Due Diligence for PEPs and Sanctions
Not all clients are assessed in the same way during the KYC process. Business relationships with foreign politically exposed persons (PEPs) are considered to present an increased risk. For domestic PEPs and PEPs of international organisations, classification as an increased-risk relationship depends on additional risk criteria. Any links to sanctions must be reviewed in accordance with the applicable Swiss regulations.
Common Mistakes in the KYC Process
Even when companies have clearly defined KYC requirements, mistakes frequently occur in day-to-day operations.
Failing to Fully Identify Beneficial Owners
A common mistake is to identify only the immediate contractual counterparty. Particularly in the case of holding structures or trusts, however, it is necessary to establish who ultimately benefits from the business relationship.
Failing to Update Client Data Regularly
If ownership structures, business models or beneficial owners change, the existing information must be reviewed and updated where necessary.
Insufficient Employee Training
Even well-defined processes are of limited value if employees are unable to recognise warning signs or are unfamiliar with new legal requirements.
What Are the Consequences of AMLA Violations?
Companies and individuals that fail to comply with their due diligence obligations under the Anti-Money Laundering Act may face fines, criminal consequences or regulatory measures. In serious cases, financial intermediaries may even have their authorisation revoked.
There is also another factor that is often difficult to quantify: the loss of trust among clients, business partners and authorities. Particularly in the financial and fiduciary sectors, reputational damage can have long-term economic consequences.
Careful KYC checks, up-to-date client information and clearly documented processes help reduce these risks and ensure reliable compliance with the statutory requirements of the AMLA.
Support With Your KYC Process in Switzerland
The requirements of the Anti-Money Laundering Act are complex and continue to evolve. Companies need to fulfil their legal obligations without allowing compliance requirements to distract them excessively from their core business activities.
Jost & Partners supports companies in implementing KYC and AMLA requirements in a legally compliant and practical manner. Whether you are establishing new processes, reviewing complex corporate structures or dealing with questions concerning beneficial owners, PEPs or suspicious circumstances, our
law firm specialising in banking and financial market law provides advice tailored to your individual situation.
When it comes to matters such as money laundering and terrorist financing, compliance is not simply about following regulations. It is also about having the confidence that your processes are properly structured, risks are identified at an early stage and you can continue to focus on your core business.
If you require assistance with implementing your KYC and AMLA obligations or would like specific legal questions to be reviewed, we would be pleased to assist you.
