For many professional services firms such as law firms, accountancies, auditors, and consultancies, Know Your Customer (KYC) may once have felt like a process borrowed from banking. Today, it plays an increasingly important role in helping firms manage financial crime risk and protect business reputations.
KYC is the process by which firms identify and seek to verify who their customers are; helping provide additional visibility into the nature of the relationship and supporting risk assessment activities.
For professional services, this might involve supporting identity verification processes, reviewing beneficial ownership details, or analysis against sanctions lists and Politically Exposed Persons (PEPs) datasets, as well as source-of-funds risk assessments.
KYC can also involve supporting ongoing risk monitoring processes throughout the lifecycle of the business relationship.
Many KYC obligations for professional services firms originate from anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks. Although specific requirements vary by jurisdiction and business activity, KYC has become an important approach that can help firms assess and monitor risk indicators associated with fraud, sanctions compliance, bribery and corruption, and tax-related risk indicators. For example, a law firm advising on a cross-border acquisition, or an accountant preparing financial statements for a group with a complex offshore ownership structure, may encounter customers whose risk profile spans multiple areas simultaneously.
Understanding risk exposure may support alignment to AML/CTF regulatory frameworks and broader ethical business practices.
The Financial Action Task Force (FATF) develops international standards that inform AML and CTF frameworks worldwide. Under Recommendation 22, customer due diligence (CDD) obligations extend beyond banks to Designated Non-Financial Businesses and Professions (DNFBPs), including lawyers, accountants, auditors, notaries, and trust and company service providers when undertaking certain higher-risk activities.
The FATF’s approach reflects the view that professional services firms can play an important role in identifying and managing risks associated with misuse of legitimate business structures for financial crime.
Across the European Union, AML requirements for professional services firms are moving towards greater consistency and visibility. In 2024, the EU adopted a new Anti-Money Laundering Regulation (AMLR) and established the Anti-Money Laundering Authority (AMLA) to create a more harmonized framework for CDD, beneficial ownership visibility, and monitoring. Most provisions will apply from July 2027.
In the United Kingdom, legal and accounting professionals remain subject to the Money Laundering Regulations 2017 and are expected to take a risk-based approach to CDD, beneficial ownership assessment, and ongoing monitoring.
In the United States, scrutiny of CDD and beneficial ownership transparency is increasing, with initiatives focused on strengthening visibility into corporate ownership and improving transparency around the use of intermediaries and legal structures to move funds.
In Australia, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 extends AML/CTF obligations to a range of professional services providers. From July 2026, firms providing designated services will be subject to requirements such as CDD, risk assessment, ongoing monitoring, and AML/CTF frameworks.
Taken together, these developments indicate that regulators increasingly expect firms to understand who they are doing business with, identify beneficial ownership, assess financial crime risk, and maintain a documented, risk-based approach to CDD processes throughout the business relationship.
A KYC program may include:
Firms are often expected to demonstrate that risk assessments are living processes, updated as customer circumstances evolve, with monitoring activities that are proactive where feasible.
Technology can play a role here. Automated KYC/CDD platforms may support firms in bringing together related activities into a more consistent workflow. For example, firms can access a broad range of data on UBOs, PEPs, sanctions, and adverse media to support due diligence processes.
Some organizations may also adopt perpetual KYC (pKYC) approaches, which can help surface information associated with potential changes in customer risk profiles through regularly updated data and trigger-based alerts.
For firms with a large customer base, this may support a shift from manual, resource-intensive processes to more data-supported and repeatable approaches.
Looking for a broader perspective on KYC? Get your copy of Moody's white paper, KYC in Context, to explore some of the global frameworks shaping customer due diligence and how regulatory expectations may compare across multiple industries.
Moody’s offers a range of automated CDD and KYC solutions for professional services firms. These solutions can assist customers in performing due diligence processes and help provide additional visibility into customer risk, supporting their efforts to manage regulatory and financial risk.
Please get in touch with the team to find out more.
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 https://www.moodys.com/web/en/us/legal/global-disclaimer.html on Moody’s website.
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