KYC stands for “know your customer” or “know your client”. This is a process through which businesses identify clients and assess suitability, together with the risks of possible illegal intentions in a connection with the business.
KYC is also sometimes mentioned as a term that refers to anti-money laundering rules and bank regulations that govern activities. Companies use KYC processes in order to ensure that proposed customers, consultants, agents and distributors cannot be bribed. Export creditors, insurers, banks and numerous other financial institutions now demand customers to provide really detailed due diligence data.
Businesses and financial institutions choose KYC lawyers because they need guidelines to be set up. The purpose of the guidelines is to stop banks from being utilized by the criminal parts of money laundering activities. Procedures are also in place to help the banks to understand customers or/and financial dealings. KYC is practically also a big part of risk management.
Nowadays, any business can implement KYC procedures. The KYC policies are usually framed so that they include 4 really important elements:
· Risk management.
· Customer acceptance policy.
· Transaction monitoring.
· Customer identification procedures.
KYC is a crucial and mandatory procedure for financial institutions. This is why there is a really stringent regulatory environment in place to help minimize fraud risk. Such a fact is possible by identifying the suspicious elements before they can negatively affect the business-client relationship cycle.
In order to draft a good KYC policy, the user or customer can be defined as being:
· An entity or an individual that maintains a business relationship or an account with a bank.
· A beneficiary of transactions that were conducted by the professional intermediaries. This includes solicitors, chartered accountants and stockbrokers.
· A person on whose behalf an account is being maintained.
· An entity that is connected with a transaction and that can pose a risk to a bank or to other entities.
Typical KYC Controls
Different KYC controls can be used these days. This includes:
· Basic PII (personally identifiable information) analysis and collection.
· Respecting CIP (Customer Identification Program), which is included in US regulations law.
· Identity particulars screening against the global watch lists in order to determine public exposure status.
· Customer Profile creation and assessment. This is based on the transactional behavior of a customer.
· Determining the risk of a customer when it comes to money laundering, identity theft or terrorist finance tendency.
· Customer transaction monitoring against recorded profile and expected behavior.
KYC law compliance is not something that should be taken lightly. Businesses that want to use KYC or that are forced to do so by law need to hire respectable and experienced attorneys with experience in this domain of activity. This is needed in order to guarantee proper KYC compliance.
Do not underestimate the importance of proper KYC procedures. Discuss every modification with the attorney and take all the time that is needed to make the correct choices. Implementing know your customer procedures can easily make or break a business. You wouldn’t want yours to be affected by a lack of knowledge.