Frequently Asked Questions
Below you will find the answers to some frequently asked questions
What is Know Your Customer (KYC)?
Know Your Customer (KYC) is a term used to describe the process of identifying and verifying the customers or clients of a business, such as a bank or other financial institution (although the list of obliged entities/covered institutions extends beyond Financial Institutions).
KYC is also often used as a term to describe the documents that a customer or client provides in order to satisfy verification requirements when establishing a business relationship, i.e. “KYC documents”.
Why is KYC important for banks?
KYC (Know your Customer) is an important exercise for banks to ensure that their clients are not involved, intentionally or unintentionally, in money laundering or terrorism financing. There is an onus on financial institutions to research the backgrounds of any prospective and even existing clients to avoid severe reputational and financial penalties levied by regulators.
How does KYC prevent money laundering?
Money Laundering and Counter Terrorist Financing are risks that must be managed. An effective KYC programme will mitigate this risk, by ensuring that you have verified the identity of your customers, understand the nature and purpose of the anticipated activity and their source of funding.
What is KYC remediation?
Know Your Customer (KYC) remediation denotes the uplift of client KYC data to an agreed standard focused on the highest-risk elements of the customer KYC profile. It differs from a KYC refresh exercise in that remediation fundamentally involves correcting a legacy problem and getting to a set baseline where client data can be continually refreshed year after year.
What is a KYC review?
KYC regulations require financial institutions to regularly review their entire book of clients/counterparties. Regulations vary across regions. Typically, financial institutions take a risk-based approach to regular KYC reviews:
- High risk customers reviewed (depending on risk tolerance and regulatory guidance) on a bi-annual or annual basis
- Medium risk customers reviewed (depending on risk tolerance and regulatory guidance) annually or bi-annually
- Low risk customers reviewed (depending on risk tolerance and regulatory guidance) every 3-5 years
What is meant by customer due diligence (CDD)?
Customer Due Diligence (CDD) or Know Your Customer (KYC) policies are the foundation of an effective AML/CFT programme.
Customer Due Diligence includes:-
(a) Identifying and verifying the identity of the customer based on documents, data or information obtained from a reliable and independent source;
(b) Identifying and verifying where applicable, the beneficial owner taking a risk-based approach, and adequate measures to understand the ownership and control structure of the customer;
(c) Obtaining information on the purpose and intended nature of the business relationship;
(d) Conducting ongoing monitoring of the business relationship including ensuring that the transactions carried out are consistent with the customer’s activities, the business and risk profile, and ensuring that documents, data or information held regarding the customer are kept up-to-date.