Know Your Customer (KYC)

In financial services, the Know Your Customer or Know Your Client (KYC) requirements demand that professionals check the identity, suitability, and risks associated with maintaining a business relationship. 

The processes are part of a bank’s overall anti-money laundering (AML) policy. In addition, companies of all sizes use KYC processes to ensure that their potential customers, agents, consultants, or distributors are anti-bribery compliant and who they claim to be. 

Customers are increasingly being asked to supply thorough due diligence information by banks, insurance, export creditors, and other financial organizations. 

Initially, only financial institutions were subject to these regulations, but now the non-financial industry, fintech, virtual asset dealers, and even non-profit organizations are required to comply.

Standards Set For KYC

KYC requirements aim to prevent enterprises from being utilized for money laundering by criminal elements. Businesses can also use related techniques to understand their customers and financial transactions better. 

This allows them to manage their risks more effectively. As a result, KYC concepts are being used by banks as well as many online enterprises. They usually include the following four critical features in their KYC policies:

• Acceptance policy for customers
• Procedures for identifying customers
• Transactions monitoring; and
• Management of risks.

KYC has become an essential and critical step for both financial and non-financial companies because of the harsh regulatory environment. 

Because it reduces the danger of fraud by detecting suspicious aspects sooner in the client-business connection, it reduces the risk of fraud. A customer/user may be defined as follows for a KYC policy:

• a person or entity that maintains an account with the reporting entity or has a business relationship with it;
• The beneficial owner is the person on whose behalf the account is managed.
• Beneficiaries of transactions facilitated by professionals such as stockbrokers, Chartered Accountants, or Solicitors, where permitted by law; or
• Any person or entity involved in a financial transaction can expose the bank to severe reputational or other risks, such as a wire transfer or the sole issuing of a high-value demand draft.