Who's a Customer for KYC Under EU Directive?

In the European Union, the Know Your Customer (KYC) directive defines who is considered a "customer" for the purposes of anti-money laundering (AML) and counter-terrorist financing (CTF) compliance.

Definition of a Customer

According to the EU's Fifth Anti-Money Laundering Directive (5AMLD), a customer is defined as:

"any natural or legal person who enters into a business relationship with an obliged entity, or occasionally carries out a transaction with an obliged entity where the value of the transaction exceeds EUR 1,500 and which is not carried out through a face-to-face meeting."

Categories of Customers

The KYC directive categorizes customers into the following groups:

1. Natural Persons

Individuals who engage in business relationships with obliged entities, such as:

• Individuals opening bank accounts
• Individuals purchasing real estate
• Individuals making large cash transactions

2. Legal Persons

Entities (corporations, partnerships, trusts, etc.) that establish business relationships with obliged entities, such as:

• Companies opening corporate accounts
• Trusts receiving or investing funds
• Non-profit organizations receiving grants

3. Occasional Customers

Individuals or entities that occasionally conduct transactions with obliged entities, exceeding EUR 1,500 and not done face-to-face. This includes:

• Individuals making large cash withdrawals
• Entities paying large sums for goods or services
• Individuals using money transfer services without establishing an account

Note: Obliged entities are required to conduct enhanced KYC measures for high-risk customers, including politically exposed persons (PEPs), non-resident customers, and customers with complex account structures.

Exemptions to the KYC Definition

The following are exempt from the KYC definition:

• Public bodies and international organizations: Governments, central banks, etc.
• Financial institutions: Banks, investment firms, insurance companies, etc.
• Listed entities: Companies publicly traded on regulated markets
• Employees: Individuals acting on behalf of their employers
• Transactions: Payments for salaries, wages, or other benefits

Importance of KYC for AML/CTF Compliance

KYC plays a crucial role in preventing money laundering and terrorist financing by:

• Identifying the true identity of customers
• Assessing their risk of being involved in illegal activities
• Monitoring their transactions for suspicious patterns
• Reporting suspicious transactions to authorities

Table 1: KYC Compliance Statistics

Source: Thomson Reuters

Table 2: Examples of KYC Verification Methods

Table 3: Common Mistakes to Avoid in KYC Compliance

Conclusion

Understanding who is considered a customer under the EU KYC directive is essential for obliged entities to comply with AML/CTF regulations effectively. By implementing robust KYC procedures, businesses can help prevent money laundering, terrorist financing, and other financial crimes.