KYC stands for Know Your Customer, or Know Your Client, and it is a set of standards in the financial services market to ensure that businesses verify the identity and risks involved in a business relationship with their customers. This comes under their broader AML policies, for anti-money laundering.
Who needs to implement KYC?
KYC is relevant across all industries, but is especially pertinent for banking, finance, insurance, real estate, and trading and cryptocurrency. As cyberthreat becomes more sophisticated, and the digital world becomes harder to visualize and control, KYC has become increasingly important. The KYC process involves accurately identifying the customer, and verifying that they do not have relationships with any other people who have participated in terrorism, money laundering or corruption.
It is used for securely transferring global payments, and each country has their own rules, enforced and monitored by their own governing body. For example, in Australia, AUSTRAC monitors all financial transactions and sets the rules for client identification, while in Canada, this is regulated by FINTRAC, Canada’s financial intelligence unit. India, Italy, Japan, Mexico, South Korea and the UK are some examples of other countries that regulate and enforce KYC due diligence.
How can a business perform KYC checks?
Criticism of KYC is that it puts a heavy burden on the business. Organizations should look for ways to standardize KYC for enhanced due diligence at the point where new relationships are formed and also at set milestones. This can limit the amount of repetitive or ad-hoc work that needs to be done. An example is setting up an automated customer identification program.
There are some governments and regulators who have been able to streamline and enforce KYC as part of their processes. For example, in Europe, AML5 and eIDAS have introduced systems and processes that ensure fully-secure digital identification methods with KYC embedded within. This is regulated as part of customer due diligence.
What are KYC documents?
There may be specific KYC documents that a business needs to collect for KYC and customer due diligence, for example a copy of their customers drivers’ license, their passport, or a document that serves as proof of address. These can be added to an onboarding process and in many cases automated. Also, KYC does not need to be carried out in person, it can be digitized and completed online using eKYC (electronic-KYC) to collect all relevant documentation.
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