Customer due diligence for banks - consultative document

January 2001

Issued for comment by 31 March 2001

Note: This consultative document has been superseded by Customer due diligence for banks (Basel Committee Publications No. 85, October 2001)

Executive Summary

Supervisors around the world are increasingly recognising the importance of ensuring that their banks' have adequate controls and procedures in place so that they are not used for criminal or fraudulent purposes. Adequate due diligence on new and existing customers is a key part of these controls. Without this due diligence, banks can become subject to reputational, operational, legal and concentration risks which can result in significant financial cost to banks.

However, as a 1999 survey revealed, many supervisors around the world have not developed basic supervisory practices and are looking to the Basel Committee on Banking Supervision for insight on the appropriate steps to take. Accordingly, the Committee has developed a series of recommendations that provide a basic framework for supervisors and banks. Supervisors should work with their supervised institutions to ensure that these guidelines are considered in the development of know-your-customer (KYC) practices.

Anti-money laundering initiatives have traditionally been the province of the Financial Action Task Force (FATF) and it is not the Committee's intention to duplicate those efforts. Instead, the Committee's interest is from a wider prudential perspective. Sound KYC policies and procedures are critical in protecting the safety and soundness of banks and the integrity of banking systems.