Know Your Customer (KYC) has moved from a back‑office compliance task to a front‑line requirement for asset managers, buy‑side firms, and structured finance specialists.
It sits at the intersection of regulatory requirements, fin-crime prevention, and investor trust. KYC is an important part of operations, as well as compliance.
For the buy‑side, KYC is important to meeting increasingly wide-ranging anti‑money laundering (AML), sanctions, and anti-financial crime expectations.
Many regulators expect firms to identify their investors, clients, and counterparties, understand the risk they pose, and to then monitor that risk throughout the lifecycle of a relationship.
Robust KYC can support efforts to reduce exposure to money laundering, terrorist financing, sanctions breaches, fraud, and corruption across a range of fund structures and financing vehicles. Effective KYC can also help protect margins and client relationships by reducing remediation work, avoiding regulatory penalties, and supporting smoother onboarding/due diligence experiences.
At a global level, the Financial Action Task Force (FATF) recommendations set out internationally recognized standards covering customer identification, beneficial ownership transparency, and ongoing monitoring. While not legally binding, these recommendations inform national AML regimes and supervisory expectations.
Across jurisdictions, supervisors increasingly emphasize a risk-based approach to compliance, supported by documented policies, governance, and access to reliable data, rather than reliance on one-off or purely checklist driven processes.
In the United States, the Bank Secrecy Act (BSA) and FinCEN regulations establish requirements around customer due diligence (CDD) and beneficial ownership, including for certain private funds and investment related entities. Recent regulatory developments have further clarified supervisory expectations in these areas.
In the European Union, the AML regulatory framework requires investment firms and funds within scope to apply CDD, identify beneficial owners, and apply ongoing monitoring on a risk sensitive basis. Additionally, the establishment of the Anti-Money Laundering Authority (AMLA) is intended to support greater consistency in financial crime prevention and enforcement across member states.
In the UK, the AML regime overseen by the Financial Conduct Authority (FCA) includes requirements related to CDD, sanctions screening, and enhanced due diligence (EDD) for higher risk relationships.
In this context, KYC for investment firms typically involves several interlocking activities:
Moody’s solutions can support these steps with a unified platform that provides the tools to bring together identity and entity verification, UBO mapping, sanctions and PEP screening, adverse media and workflow orchestration, including a perpetual KYC approach for ongoing monitoring.
In buy‑side and structured finance, complex and layered ownership structures can be quite common, involving funds of funds, holding companies, trusts and special purpose vehicles (SPVs) that can obscure beneficial ownership and control and make UBO discovery more time‑consuming and uncertain. Indirect and intermediated investors can distance the manager from the end investor and raise questions around knowing your customer’s customer.
The volume of documentation associated with large investor bases, multiple vehicles, and cross‑border structures can create inconsistency. Structured finance transactions may add another layer of complexity as they can involve multiple issuers, sponsors, collateral pools, and servicing arrangements, each with their own KYC and sanctions risks.
Sanctions risk itself has become more complicated in recent years, with firms increasingly needing to understand ownership and control, detect sanctioned securities, and identify indirect ties to sanctioned entities during screening that goes beyond published lists.
In practice, KYC frameworks used by investment firms often reflect a combination of risk segmentation, governance structures, and data-driven processes.
Many firms adopt risk-based onboarding approaches that differentiate between lower and higher risk relationships, with more extensive due diligence applied where risk indicators are higher. Clear policies and governance models can help define how front office, operations, and compliance teams interact, including escalation mechanisms for unusual activity.
Centralized approaches to data and document collection are also commonly used to help improve consistency and oversight, particularly where firms manage large investor bases or complex structures. Screening and monitoring activities may be supported by automated workflows that draw on sanctions, PEP, adverse media, and other risk relevant datasets, with periodic review as circumstances change.
For buy side and structured finance teams, KYC activities commonly extend beyond initial onboarding. Across the investment lifecycle, firms often review investor, counterparty, and entity information in response to changes in ownership, structure, risk profile, or external factors such as sanctions updates or adverse media.
Moody’s solutions are designed to support KYC and client lifecycle management activities by bringing together identity and entity verification, beneficial ownership data, sanctions and PEP screening, adverse media, and workflow capabilities within a single environment. These capabilities can be used to support onboarding, periodic review, and ongoing monitoring processes across different entity types and structures.
To find out how Moody’s can help with KYC automation, please get in touch.
*Disclaimer: This content is for informational purposes only and does not constitute legal, financial, compliance or other professional advice. Please consult with a qualified professional for specific legal, financial, compliance, or other professional advice. For more terms and conditions pertaining to Moody’s products and services, refer to the disclaimer on Moody’s website.