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Know Your Customer (KYC) guidelines in financial services require 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 Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictio ...
(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 Bribery is the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official, or other person, in charge of a public or legal duty. With regard to governmental operations, essentially, bribery is "Cor ...
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 Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. It can be a ...
information. Initially, these regulations were imposed only on the financial institutions but now the non-financial industry, fintech, virtual assets dealers, and even non-profit organizations are liable to oblige.


Laws by country

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Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
: The Australian Transaction Reports and Analysis Centre (AUSTRAC), established in 1989, monitors financial transactions in Australia and sets client identification requirements. *
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
: The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), established in 2000, is Canada's financial intelligence unit. It updated its regulations in June 2016 regarding acceptable methods to determine the identity of individual clients to ensure compliance with AML and KYC regulations. A pending lawsuit is active in Canada challenging the constitutionality of the new legislation. *
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
: The
Reserve Bank of India The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible f ...
introduced KYC guidelines for banks in 2002. *
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
: The
Banca d'Italia The Bank of Italy ( Italian: ''Banca d'Italia'', informally referred to as ''Bankitalia''), (), is the central bank of Italy and part of the European System of Central Banks. It is located in Palazzo Koch, via Nazionale, Rome. The bank's cur ...
exercises regulation power for the financial industry, in 2007 set KYC requirements for financial institutions that operate on Italian territory. *
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the n ...
: Act on identification of customers by financial institutions 2003 *
Mexico Mexico (Spanish language, Spanish: México), officially the United Mexican States, is a List of sovereign states, country in the southern portion of North America. It is borders of Mexico, bordered to the north by the United States; to the so ...
: The "Federal Law for Prevention and Identification of Operations with Resources from Illicit Origin", promulgated in 2012 with president Felipe Calderon's administration and came into force in 2013 with the president Enrique Peña Nieto administration. *
Namibia Namibia (, ), officially the Republic of Namibia, is a country in Southern Africa. Its western border is the Atlantic Ocean. It shares land borders with Zambia and Angola to the north, Botswana to the east and South Africa to the south and ea ...
: Financial Intelligence Act, 2012 (Act No. 13 of 2012) published as Government Notice 299 in Gazette 5096 of 14 December 2012. *
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island coun ...
: Updated KYC laws were enacted in late 2009 and entered into force in 2010. KYC is mandatory for all registered banks and financial institutions (the latter has an extremely wide meaning). *
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
: Act on Reporting and Use of Certain Financial Transaction Information regulates due diligence in the country. *
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
: The Money Laundering Regulations 2017 are the underlying rules that govern KYC in the UK. Many UK businesses use the guidance provided by the European Joint Money Laundering Steering Group along with the Financial Conduct Authority's 'Financial Crime: A guide for firms' as an aid to compliance.


KYCC

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. 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).


KYB

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 if it was involved in any sort of criminal activity such as
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
, terrorist financing,
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
, etc. KYB is significant in identifying fake business entities and shell companies. it is crucial for efficient KYC and AML compliance. According to 5th AML directive, KYB is required for the following AML-regulated entities: *
Credit institutions A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Becaus ...
* Crypto marketplaces * Estate agents * External Accountants * Financial institutions * Gambling services * Notaries * Online banking * Online payment services * Services auditors * Tax advisors * Trusts * etc.


eKYC

Electronic know your customer (eKYC) involves the use of internet or digital means of identity verification.


Criticism

Criticisms of this 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. * Customers may feel the information requested to be intrusive and burdensome and may choose not to enter the business relationship as a result. * 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 anywhere in the world due to lack of proof of address, bills, and/or debt documentation required by KYC. * Some citizens in other countries (Canada) are fighting back against the USA over-reach into their sovereign banking system and have challenged new USA law in their courts.


See also

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Anti-money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictio ...
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Anti-money laundering software Anti-money laundering software (AML software) is software used in the finance and legal industries to help companies comply with the legal requirements for financial institutions and other regulated entities to prevent or report money laundering ...
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Bribery Bribery is the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official, or other person, in charge of a public or legal duty. With regard to governmental operations, essentially, bribery is "Cor ...
* Certified copy * Financial Action Task Force on Money Laundering *
Political corruption Political corruption is the use of powers by government officials or their network contacts for illegitimate private gain. Forms of corruption vary, but can include bribery, lobbying, extortion, cronyism, nepotism, parochialism, patronage, i ...
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Politically exposed person In financial regulation, a politically exposed person (PEP) is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and ...


References

{{DEFAULTSORT:Know Your Customer Bank regulation Banking in India Banking industry Mobile payments Identity documents Identity management systems