Is it considered best practice to use Loan/Deposit based questions in KYC?

Using Loan/Deposit based questions in KYC (Know Your Customer) processes is not considered best practice because KYC is fundamentally about understanding the complete profile of a customer, including their identity, risk factors, and financial behaviors. While loan and deposit information can provide some insights into a customer’s financial situation, relying solely on these questions may not yield a comprehensive understanding of a customer's overall risk or compliance needs.

KYC processes should encompass a broader range of questions that include the purpose of the account, source of funds, and overall financial activities, ensuring a more thorough risk assessment. Best practices suggest using a diverse set of questions that address different aspects of a customer’s financial behavior and risk profile rather than limiting the inquiry to loans and deposits. This holistic approach enhances regulatory compliance and strengthens customer due diligence efforts.