KYC Compliance Risk reflects weaknesses in customer identification, verification, beneficial ownership, address proof, entity documents, authorised signatory details, or periodic update requirements. In MSME lending, KYC is not limited to the borrowing entity; promoters, partners, directors, guarantors, beneficial owners, and related parties may also need verification. For example, a company loan can face disbursement delays if director KYC or board authorisation is outdated. This risk matters because poor KYC can lead to regulatory breaches, fraud exposure, sanctions screening issues, and difficulty enforcing documents. The common caution is to keep KYC current through the loan lifecycle, not only at onboarding. Any mismatch in PAN, GST, name, address, ownership, or constitution should be resolved and documented.