Know your customer

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The know your customer or know your client (KYC) guidelines in financial services requires that professionals make an effort to verify the identity, suitability, and risks involved with maintaining a business relationship. The procedures fit within the broader scope of a bank's Anti-Money Laundering (AML) policy. KYC processes are also employed by companies of all sizes for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant, and are actually who they claim to be. Banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information. Initially, these regulations were imposed only on the financial institutions but now the non-financial industry, fintech, virtual assets dealers, and even the non-profit organizations are liable to oblige.

Standards[edit]

The objective of KYC guidelines is to prevent businesses from being used by criminal elements for money laundering. Related procedures also enable businesses to better understand their customers and their financial dealings. This helps them manage their risks in a well-judged manner. Today, KYC principles apply to banks as well as different online businesses. They usually frame their KYC policies incorporating the following four key elements:[citation needed]

  • Customer acceptance policy;
  • Customer identification procedures;
  • Monitoring of transactions; and
  • Risk management.

The stringent regulatory environment establishes KYC as a mandatory and crucial procedure for financial institutions as well as non-financial institutions. As it minimizes the risk of fraud, by identifying suspicious elements earlier on in the client-business relationship. For the purposes of a KYC policy, a customer/user may be defined as:[citation needed]

  • a person or entity that maintains an account or has a business relationship with the reporting entity;
  • one on whose behalf the account is maintained (i.e. the beneficial owner);
  • beneficiaries of transactions conducted by professional intermediaries such as stockbrokers, Chartered Accountants, or solicitors, as permitted under the law; or
  • any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, for example, a wire transfer or issue of a high-value demand draft as a single transaction.

Laws by country[edit]

KYCC[edit]

KYCC or Know Your Customer's Customer is a process that identifies a customer's customer activities and nature. This includes the identification of those people, assessing their associated risk levels and associated activities the customer's customer (business) is involved in.[10]

KYCC is a derivative of the standard KYC process, that was necessitated from the growing risk of fraud originating from fraudulent individuals or companies, that might otherwise be hiding in second-tier business relationships. i.e. (a customer's customer).[10]

KYB[edit]

Know Your Business or simply KYB is an extension of KYC laws implemented to reduce money laundering. KYB is a set of practices to verify a business. It includes verification of registration credentials, location, the UBOs (Ultimate Beneficial Owners) of that business, etc. Also, the business is screened against blacklists and grey lists to check that it was involved in any sort of criminal activity such as money laundering, terrorist financing, corruption, etc. KYB is significant in identifying fake business entities and shell companies. it is crucial for efficient KYC and AML compliance.[11]

Controversies[edit]

Controversies over this legislation/regulation/policy include:

  • Know your customer places a costly burden on businesses operating in the financial industry, especially smaller financial companies where compliance costs are disproportionately heavy.[12]
  • Customers may feel the information requested to be intrusive and burdensome and may choose not to enter the business relationship as a result.[13]
  • Innocent, law abiding individuals such as digital nomads are very likely disproportionately disadvantaged as living a nomadic life makes it increasingly difficult or even impossible to hold any formal banking relationship anyplace in the world due to lack of proof of address, bills, and/or debt documentation required by KYC.[14]
  • Retired people who travel within their own country without having a permanent fixed address may also be disproportionately disadvantaged for the same reason.
  • Jurisdictions across the Americas, EMEA, and Asia Pacific indicated that all of these jurisdictions permit a form of reliance on customer information provided by third parties. In many instances this data is incorrect, potential bank customers may be unaware of the error and there is no grievance procedure to correct or sanction the bad data provider.
  • Some citizens in other countries (Canada) are fighting back against USA over-reach into their sovereign banking system and have challenged new USA law in their courts.[15]
  • The intelligence division at the Treasury Department has repeatedly and systematically violated domestic surveillance laws by snooping on the private financial records of US citizens and companies, according to government sources.[16]

See also[edit]

References[edit]

  1. ^ "Search".
  2. ^ https://www.legislation.gov.au/Details/F2016C01046
  3. ^ "Lawsuit filed challenging FINTRAC".
  4. ^ "'Know Your Customer' (KYC) Guidelines - Anti-Money Laundering Standards". Archived from the original on 2012-08-01.
  5. ^ "Banca d'Italia".
  6. ^ "Law information by The house of representative Japan (In Japanese)".
  7. ^ http://moleg.go.kr/english/korLawEng?pstSeq=57338&pageIndex=12. Missing or empty |title= (help)
  8. ^ "Financial Intelligence Act 2012" (PDF).
  9. ^ "AML CFT 2009".
  10. ^ a b PYMNTS (2018-01-03). "https://www.pymnts.com/news/security-and-risk/2018/trulioo-kyc-due-diligence/". PYMNTS.com. Retrieved 2019-04-24. External link in |title= (help)
  11. ^ Things you should know about KYC and KYB before compliance published on 30 December 2019 https://hackernoon.com/things-you-should-know-about-kyc-and-kyb-before-compliance-e06b32t5
  12. ^ "Patriot Act a Beastly Burden for Small B/Ds". November 2003.
  13. ^ "Know Your Customer (KYC) Will be a Great Thing when It Works".
  14. ^ (PDF) https://www.govinfo.gov/content/pkg/FR-1998-12-07/pdf/98-32333.pdf. Missing or empty |title= (help)
  15. ^ "Alliance for the Defence of Canadian Sovereignty".
  16. ^ "Treasury accused of illegally spying on Americans".