Know Your Customer(KYC)
The full form of KYC is “know your customer”, which is the process of verifying and authenticating the customer identity. Organizations use KYC compliance to reduce the risks of identity theft and fraud by ensuring that the customer is actually who they claim to be.
- Those in the securities industry who are dealing with the customers throughout the opening and maintaining of accounts require the KYC.
- There are two rules implemented in July in the year 2012 that cover this topic collectively: Financial Industry Regulatory Authority Rule 2090 (Know Your Customer) as well as FINRA Rule 2111 (Suitability).
- These rules are set in place to protect the broker-dealer and the customer and so that brokers and firms deal fairly with clients.
In order to comply with KYC, organizations must collect and verify customer data, which may include name, address, date of birth, and other identifying information. The customer’s identity is then verified through government-issued ID, such as a passport or driver’s license.
Once the customer’s identity has been verified, the organization can then create a customer profile and begin to assess the customer’s risk level. Organizations may use different methods to assess risk, but KYC compliance is typically used to assess financial risk.
- KYC procedures determined by banks involve all the required actions to assure their customers are real, assess, and monitor risks.
- These client-onboarding processes help avoid and identify money laundering, terrorism financing, and different illegal corruption schemes.
- KYC process involves ID card verification, face verification, document verification like utility bills as proof of address, and biometric verification.
- Banks must comply with the KYC regulations and anti-money laundering regulations to restrain fraud. KYC compliance responsibility lies with the banks.
- In case of negligence to comply, heavy penalties can be implemented.