Know Your Customer (KYC) is the backbone of responsible lending, protecting lenders, borrowers, and the financial system from risk, fraud, and reputational damage. 

In lending, speed and precision are everything, but without robust KYC, they’re nothing.  KYC protocols aren’t just regulatory checkboxes; they’re the foundation of trust, risk management, and reputational integrity. Whether onboarding a borrower or structuring a complex facility, lenders must understand who they’re dealing with, source of funds, and the nature of the transaction.  

At Cohort Capital, we see KYC as an important step when lending, one that protects our investors, equips our legal team with the right information to help structure deals, and ensures we move fast without compromising on compliance. 

What KYC Looks Like in Practice 

KYC in practice means going beyond surface-level checks to build a clear picture of the borrower and the transaction.  

It starts with verifying identity and beneficial ownership, particularly important in complex structures or offshore entities. It helps prevent impersonation, fraud, and exposure to hidden third parties. Beneficial ownership checks reveal who ultimately controls the borrower, critical for assessing risk and ensuring transparency. 

Then, understanding the source of wealth and funds. Knowing where the borrower’s money comes from isn’t just a regulatory requirement, it’s a safeguard against money laundering and financial crime. For lenders, it ensures the transaction is backed by legitimate capital and that the borrower’s financial profile aligns with the proposed deal. This step also helps flag inconsistencies or red flags early in the process. 

Screening for sanctions, PEPs, and adverse media. Sanctions breaches can result in penalties and reputational damage. Screening for politically exposed persons (PEPs) and adverse media ensures the borrower isn’t linked to corruption, criminal activity, or geopolitical risk. For bridging lenders, this protects investor confidence and ensures deals don’t inadvertently involve high-risk individuals or jurisdictions. 

Assessing transaction rationale. Fast capital should still have a clear purpose. Whether the bridge is for an asset purchase, liquidity gap, or refinancing, understanding the rationale helps confirm the deal is legitimate, time-sensitive, and commercially sound. 

A Smarter Approach to Risk 

 In bridging, the pressure to move quickly is real. But cutting corners on due diligence can lead to costly consequences, from regulatory breaches to fraud exposure. The best lenders treat KYC as a strategic asset, not a hurdle. When done well, it enables faster decision-making, stronger investor confidence, and smoother exits. 

At Cohort Capital, we ensure our KYC processes are proportionate, efficient, and watertight. Whether working with a new borrower, revisiting an existing relationship, or structuring a facility for a family office, we apply rigorous KYC to every case. 

Glossary of Key Terms in Lending Compliance 

• Know Your Customer (KYC):
  A process to verify the identity of clients, assess risk, and ensure compliance with financial regulations.

• Anti-Money Laundering (AML):
  Laws and procedures designed to prevent criminals from disguising illicit funds as legitimate income.

• Due Diligence:
  The investigation and evaluation of a borrower’s background, financials, and transaction rationale before lending.

• Risk Profiling:
  Assessing a client’s risk level based on factors like geography, transaction type, and ownership structure.

• Source of Funds:
  Documentation and analysis of where a client’s money originates, used to detect suspicious or illegal activity.

• Beneficial Ownership:
  Identifying the individuals who ultimately own or control an entity, even if they’re not listed as shareholders.

• Fraud Prevention:
  Systems and checks designed to detect and deter identity theft, misrepresentation, and financial crime.
  

• Enhanced Due Diligence (EDD):
  A deeper level of scrutiny applied to high-risk clients or complex transactions, often involving manual review.

• Sanctions Screening:
  Checking clients against global watchlists to ensure they’re not subject to financial or trade restrictions.

• Politically Exposed Persons (PEPs):
  Individuals in prominent public roles who may present higher risk due to potential influence or exposure to corruption.

• Data Privacy and Protection:
  Safeguarding client information from unauthorised access, in line with regulations like GDPR or CCPA.