What is KYC Know Your Customer?

It is possible that the term “Know your Customer”, also known by the acronym KYC, does not have any special meaning for you, but the reality is that it keeps behind it something very important that you should know.

“KYC Know Your Customer” is well known by financial institutions as an effective method to verify the identity of customers. It is a fundamental practice to protect your FI from fraud and losses due to illegal funds and transactions.

“KYC” refers to the steps taken by a financial institution (or company) for:

  • Establishing the identity of the customer
  • Understand the nature of the client’s activities (the main objective is to ensure that the source of the client’s funds is legitimate).
  • Assess the risks of possible money laundering associated with that customer.

This system is necessary to comply with the legal requirements in relation to the fourth European Directive dealing with money laundering. Today, there is a multitude of problems related to corruption. Today, money laundering is a common activity.
KYC controls are agile and secure electronic recognition tools, the aim of which is to combat all illegal transactions taking place in the world of international finance.

The practices related to “Know Your Customer” or “KYC Know Your Customer” are used to meet the imperative need of entities when verifying who acts under the law, thus trying to reduce the risk of fraud for potential captious customers.

What does the KYC “Know Your Customer” solve?

What KYC controls do is to protect companies by ensuring that they can trust the businesses they are doing as legitimate entities they can trust. Similarly, it is ensuring the protection of all those who would otherwise be immersed in a financial crime.

It is a customer identification process that offers multiple advantages, all thanks to the technological innovation we are currently experiencing. With this system, the financial sector aims to offer better services to its customers and have more accurate data.

This process is simple and fast, reducing costs significantly in terms of human and material resources.

Money laundering and terrorist financing is a major concern. They represent two of the most feared threats in the international financial landscape, which must be combated and eliminated. In Europe, the fourth AML4 regulation came into force in the summer of 2017 and consists of a set of rules, so that financial institutions are protected against any threat.

One of these obligations is to identify the identity of old and new customers by sharing this information with the central administration. When a bank treats a new customer, KYC controls must start by collecting personal data to verify the identity of the customer.

Some financial institutions still choose to carry out this process on paper and in person. Others, however, prefer to opt for digital processing where additional checks are required such as the fingerprint system or facial recognition to know if the person is really who they claim to be.

From this verification system, the bank can closely monitor this customer’s account activity to ensure that nothing is suspicious or out of place.

In conclusion

This process includes: analyzing identification documents, verifying data with other databases, and tracking user behaviour to see if it is consistent.

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