SIC vs NAICS for Compliance Use (AML, KYC, Risk, Audit Readiness)
SIC vs NAICS for Compliance Use
In compliance programs, industry classification is not just “reference data.” Industry codes influence onboarding decisions, customer risk ratings, underwriting outcomes, transaction monitoring rules, and the defensibility of audit documentation. This page explains how SIC and NAICS are typically used in regulated workflows—and what controls matter most when codes are assigned, mapped, and maintained over time.
Compliance takeaway: SIC and NAICS can both be appropriate in regulated workflows. The deciding factor is usually governance: whether your organization can explain how a code was assigned, prove it is still accurate, and show what changed and why. Many institutions keep both standards for compatibility across vendors and reporting needs—provided mappings are controlled, reviewed, and version-tracked.
How compliance teams use industry classification
Industry classification commonly affects multiple control points across regulated workflows. The same code may be referenced by different teams (risk, compliance, underwriting, fraud, and analytics), so consistency and documentation matter.
Typical compliance use cases
- Customer risk ratings: assigning inherent risk by sector/activity (e.g., higher-risk categories).
- Policy controls: permitted/prohibited industries and enhanced due diligence triggers.
- Transaction monitoring: scenario tuning and expected-behavior baselines by industry.
- Portfolio oversight: concentration risk and exposure reporting by sector.
Related: Industry Classification in Risk, AML & Financial Compliance
What auditors typically look for
- Rationale: why the code fits the customer’s primary activity.
- Source evidence: what information supported the classification decision.
- Change management: what changed over time and who/what approved it.
- Policy alignment: how codes connect to controls (EDD triggers, monitoring rules, underwriting rules).
SIC in compliance contexts
SIC often appears in regulated workflows because it is deeply embedded in commercial datasets, vendor enrichment feeds, and legacy systems. In practice, SIC can be used in compliance programs—especially when it is governed, reviewed, and aligned to documented policy logic.
Where SIC commonly shows up
- Vendor enrichment: third-party business data and list-based sources frequently carry SIC.
- Legacy models: existing risk models and segmentation rules sometimes rely on SIC groupings.
- Continuity: historical trend analysis and back-testing when your prior records are SIC-coded.
Controls that make SIC defensible
- Evidence-based assignment: link SIC selection to observable primary activity.
- Exception handling: flag ambiguous profiles for review instead of forcing a best-guess code.
- Mapping governance: if SIC drives controls, document how any NAICS mapping was produced and validated.
NAICS in compliance contexts
NAICS is widely used for standardized reporting, statistical analysis, and program alignment. In compliance environments, NAICS can support consistent rollups and benchmarking—especially when code assignment is explainable and controlled over time.
Where NAICS is commonly used
- Reporting and analytics: structured sector rollups and portfolio segmentation.
- Program alignment: many eligibility/reporting contexts reference NAICS-type categories.
- Benchmarking: comparing customer behavior to industry expectations (when governed and consistent).
Controls that matter for NAICS
- Primary activity clarity: ensure the NAICS reflects what the customer primarily does—not secondary activities.
- Change tracking: record updates so monitoring baselines remain explainable across time.
- Review paths: require review when classifications drive material risk decisions.
Common compliance failures (and how to prevent them)
The most frequent failures are not “SIC vs NAICS” problems—they are governance problems. Below are issues that repeatedly degrade audit readiness and increase risk model noise.
- Blind vendor auto-mapping: treating SIC↔NAICS crosswalks as guaranteed 1:1 conversions.
Fix: use mappings as a starting point, then validate against primary activity; document exceptions. - No version control: codes change, but downstream monitoring rules don’t—creating unexplained model drift.
Fix: track code history and effective dates; tie changes to review/approval. - No evidence trail: codes exist, but there’s no record of why they were assigned.
Fix: store evidence attributes (sources used, business activity signals) and a rationale summary. - Overclassification: assigning overly specific codes when the customer’s activity is not clear.
Fix: prefer defensible specificity; route edge cases to review instead of guessing. - Policy disconnect: codes are stored, but not consistently linked to EDD triggers, monitoring scenarios, or underwriting logic.
Fix: define controlled mappings from codes → policies and keep them synchronized over time.
Governance expectations for compliance-grade industry data
Compliance-grade industry classification typically requires the following characteristics, regardless of whether you use SIC, NAICS, or both:
Minimum defensibility standards
- Explainability: you can describe why the code matches the customer’s primary activity.
- Evidence: you can identify what information supported the decision.
- Consistency: similar entities are classified similarly under documented rules.
- Review paths: edge cases are handled with escalation and approval.
Operational controls
- Version control: code changes are recorded with timing and rationale.
- Quality checks: anomaly detection and reasonability checks for high-impact categories.
- Lifecycle stewardship: periodic review to ensure classifications remain current as businesses evolve.
Build audit-ready confidence in your SIC/NAICS usage
SICCODE.com focuses on governed classification: evidence-based assignments, review paths, and lifecycle controls designed to keep industry codes stable, explainable, and defensible in compliance workflows.
How SICCODE.com supports compliance-grade use
SICCODE.com supports compliance-grade classification outcomes by emphasizing governed assignment and long-term stewardship. This helps reduce false positives, prevent model drift, and improve audit defensibility when industry codes influence risk decisions.
What “governed” means in practice
- Evidence-driven decisions: codes align to what the business actually does.
- Controlled mappings: SIC↔NAICS logic is documented and reviewable.
- Lifecycle management: changes are tracked so historical outputs remain interpretable.
- Review team oversight: edge cases can be escalated to specialist review.
FAQ
-
Which code do compliance teams “prefer” for AML/KYC—SIC or NAICS?
There is no universal rule. Many compliance programs use whichever standard is most consistent with their vendors, internal models, and reporting requirements. What matters most is whether the code is defensible: evidence-based, explainable, consistently applied, and supported by change history and review paths. -
Can SIC be used in regulated compliance workflows?
Yes. SIC is widely present in commercial datasets and can be used in compliance programs when it is governed—meaning you can explain why the code fits the customer’s primary activity, document sources, and manage mappings and changes over time. -
Should we store both SIC and NAICS?
Many organizations do. Keeping both can improve compatibility across vendors and workflows and supports different reporting needs. The key is governance: document whether a code is primary or derived, control mappings, and track changes with version-aware stewardship. -
What’s the biggest compliance risk with industry codes?
The biggest risk is not which standard you use—it’s unmanaged data quality: blind auto-mapping, no evidence trail, and no version control. Those gaps can create model drift, increase false positives, and reduce audit defensibility.