Many businesses understand the importance of Know Your Customer (KYC) procedures, but fewer grasp the critical role of Re-KYC. Understanding the difference between these two processes could save your organisation from compliance failures and regulatory penalties.
What is KYC?
KYC (Know Your Customer) is the initial background check you conduct before accepting a new customer. KYC serves multiple critical functions:
Identity Verification: Establishing and documenting the true identity of prospective customers through reliable, independent sources.
Suitability Assessment: Evaluating whether the customer relationship aligns with the institution’s risk appetite and business strategy.
Risk Evaluation: Conducting comprehensive risk assessments to determine the level of money laundering, terrorism financing, and proliferation financing risks associated with each customer.
The initial KYC process creates a baseline understanding of your customer that informs ongoing monitoring and transaction analysis. However, this snapshot represents just the beginning of your compliance journey, not its conclusion.
What is Re-KYC?
Re-KYC addresses the fundamental challenge of maintaining current customer intelligence in a dynamic environment. This periodic updating process ensures that your understanding of customer risk remains accurate and actionable.
The Core Purpose of Re-KYC:
Re-KYC systematically refreshes customer information to track changing profiles and evolving risk factors. Unlike initial KYC, which establishes baseline understanding, re-KYC maintains that understanding over time through structured updates and reviews.
Key Elements of Effective Re-KYC:
- Periodic Information Updates: Regular collection of current customer data including financial statements, ownership structures, and business activities
- Risk Reassessment: Evaluation of how changes affect the customer’s risk profile and required monitoring level
- Documentation Refresh: Updating identity documents, authorised signatories, and beneficial ownership information
- Enhanced Due Diligence Triggers: Identifying when customer changes require additional investigation or enhanced monitoring
Why Do You Need Both?
People and Businesses Change
Customer circumstances don’t stay the same forever. Individuals may change jobs, move to different countries, or inherit money. Companies might expand into new markets, change ownership, or alter their business activities. Furthermore, risk levels can increase or decrease based on these changes
Regulations Evolve
Financial crime regulations and risk assessments change regularly. A customer who was low-risk five years ago might now be considered high-risk due to updated rules or changes in their country’s risk rating.
It’s a Legal Requirement
Most financial regulations require ongoing customer monitoring, not just initial checks. Re-KYC helps you meet these legal obligations and demonstrates to regulators that you’re actively managing risks.
Key Differences at a Glance
| KYC | Re-KYC |
| Happens before customer onboarding | Happens during the ongoing relationship |
| One-time initial verification | Periodic updates and reviews |
| Establishes baseline customer understanding | Maintains current customer knowledge |
| Focuses on eligibility and initial risk | Focuses on changes and evolving risks |
How Often Should You Conduct Re-KYC?
The frequency depends on your customer’s risk level:
- High-risk customers: Every 12 months or when significant changes occur
- Medium-risk customers: Every 2-3 years
- Low-risk customers: Every 3-5 years
You should also conduct Re-KYC whenever you notice unusual transaction patterns, changes in customer behaviour, negative news about the customer and/or updates to regulatory requirements.
What Happens If You Don’t Do Re-KYC?
Neglecting Re-KYC can result in:
- Regulatory fines for non-compliance
- Missed red flags that could indicate financial crime
- Outdated risk assessments leading to inappropriate monitoring
- Operational inefficiencies from false alerts based on old information
Best Practices for Effective Re-KYC
1. Use a Risk-Based Approach
Focus more resources on higher-risk customers whilst maintaining basic updates for all customers.
2. Set Clear Schedules
Create systematic reminders for when each customer’s Re-KYC is due, rather than leaving it to chance.
3. Look Beyond Documents
Don’t just collect updated paperwork—analyse what the changes mean for the customer’s risk profile.
4. Integrate with Monitoring
Use Re-KYC findings to adjust your ongoing transaction monitoring and suspicious activity detection.
5. Train Your Team
Ensure staff understand not just how to conduct Re-KYC, but why it’s important for effective compliance.
Conclusion: Re-KYC as Strategic Advantage
Effective re-KYC transforms compliance from a static check-box exercise into a dynamic risk management tool. Organisations that excel at re-KYC gain deeper customer understanding, more accurate risk assessment, and stronger regulatory relationships.
Need help implementing effective KYC and Re-KYC procedures? Contact CompFidus by email at mentoring@compfidus.com to learn about our comprehensive training programme led by Compliance Expert Sarika Subdhan, bringing over 30 years of frontline compliance experience to help you master effective re-KYC implementation.