What is Customer Screening?

The term Customer Screening is most often used in the financial sector when talking about knowing customers - however, it rarely stands alone. There are up to several terms that can either mean the same or are very similar to each other.

Five terms are mentioned here, which are very similar to each other: Other terms that describe the same thing. When talking about customer knowledge, there are up to several terms that can mean the same thing or are very similar.

Here is a brief review of a few words that are similar to each other:

• Customer Screening – companies within the financial sector.
• KYC – "Know Your Customer" The term KYC is used by companies that work within the Money Laundering Act.
• CDD - "Customer Due Diligence " is often used by banks.
• ODD – "Ordinary Due Diligence " is often used by banks and financial companies.
• Customer Onboarding – is often used by banks and financial companies.

What is Customer Screening all about? 

Customer Screening contains the same points as, e.g., KYC contains. The concept thereby includes that you can document that you know your customer; This includes, among other things, control of the identity, financial and business activities, and identifying the risk that the individual customers pose.

When you establish an effective Customer Screening, it helps you as a company to comply with the Money Laundering Act and also to be able to secure an effective business model in your organisation.

The risk-based approach

According to the latest directive, AML 5, which entered into force in January 2020, companies must make greater demands on assessing customer relationships. The risk of being misused for money laundering or terrorist financing must be evaluated for each customer.

Thereby, one of the most fundamental aspects of the Money Laundering Act is:

• Risk assessment
• Policies
• Business corridors

The risk-based approach entails a greater focus on control, e.g., identification and ongoing customer awareness procedures.

Risk assessment

The companies that are subject to the Money Laundering Act must prepare a risk assessment. In this risk assessment, the risks you assess to be associated with your customers must be identified.

• Customer by customer, they have to deal with the risk of being exploited for money laundering or terrorist financing.
• Be able to explain and justify the assessment and its measures to the relevant supervisory authority.
• The risk assessment must also contain the company's precautions. This must be seen in the light of being able to prevent money laundering.

Policies

A company's policy describes the company's general risk appetite. This policy includes descriptions of:

• What type of customers do you want to do business with?
• What types of customers do you not want to do business with?

Business corridors

When you talk about business conduct, it means, in short, that you have a written procedure for what you as an employee or as a company must do in certain situations.

A business process helps to:

• To provide an overview of the risks assessed with different customer groups.
• To describe the actions to be taken to meet these risks.

How often is a check of the customer's identity carried out?

A check of the customer's identity must be carried out for all new customer relationships. Further checks must also be carried out if, for example, there is a change in the customer's circumstances. For high-risk customers, this procedure can be repeated once a year, whereas for low-risk customers, the process can be repeated every five years.

How can the company ensure that they know their customers?

Companies can use a customer familiarisation procedure based on the risk assessment - also known as Customer Screening- to assess the risk they take when negotiating with customers. Thereby, a customer familiarisation procedure includes obtaining identity information about the customer.

Most often, the identity information will include:

• Name
• CPR or CVR number, depending on whether it is a natural or legal person.
• Information that describes the desired customer relationship
• Information that describes the customer's business and activities

After that, this information must be validated by a reliable source. This means that documents must be verified against other sources validating the customer's identity. This can, e.g., be an address or a passport.

Thereby, the customer knowledge procedure will be able to describe what the company must do to say that they know their customers. This is also known as Customer Screening.