KYC

Know Your Customer

Also Know Your Client, KYC is a set of standards and procedures used by financial institutions and other regulated entities to verify the identity of their clients and assess the potential risks of doing business with them. The primary purpose of KYC is to prevent financial crimes such as money laundering, terrorist financing, and fraud.

KYC procedures typically involve:

1. Customer Identification Program (CIP): Financial institutions must collect and verify basic customer information, such as name, date of birth, address, and government-issued identification numbers.
2. Customer Due Diligence (CDD): Financial institutions must understand the nature and purpose of their customers’ business activities, including the source of funds and the expected transaction patterns.
3. Enhanced Due Diligence (EDD): Financial institutions must conduct more extensive background checks and ongoing monitoring for high-risk customers, such as politically exposed persons (PEPs) or those from high-risk jurisdictions.
4. Ongoing monitoring: Financial institutions must continuously monitor their customers’ transactions and account activities to identify suspicious or unusual behavior that may indicate financial crimes.
5. Risk assessment: Financial institutions must assess the money laundering and terrorist financing risks posed by their customers based on factors such as geographic location, industry, and transaction volume.

KYC is a critical component of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) frameworks. Financial institutions are required by law to implement KYC procedures and face significant penalties for non-compliance. Effective KYC helps protect the integrity of the financial system and prevents criminals from exploiting it for illicit purposes.

• Abbreviation: KYC