In one sentence
Know-your-customer and anti-money-laundering procedures verifying identities and screening for illicit activity.
The longer version
KYC and AML rules require lenders to identify their customers, understand ownership, and screen for money laundering risk. Documentation of these checks is part of the loan file and a compliance expectation.
For entity borrowers, KYC extends to beneficial ownership, connecting to the certifications the file must retain.
Common questions
- What is KYC in commercial lending?
- Know your customer: verifying the identity of the borrower, its owners and key parties, and understanding the nature of the relationship, as part of anti-money-laundering compliance.
- Why do lenders run KYC and AML checks?
- Because banks and other covered institutions must maintain anti-money-laundering programs under federal law, including customer identification and due diligence.
- What documents do lenders request for KYC?
- Entity formation documents, ownership charts, identification for beneficial owners and control persons, and certifications of beneficial ownership.
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