What is the KYC Procedure?
The KYC Procedure, short form of Know Your Customer Procedure (often abbreviated to KYC) is a term commonly used in the finance sector. The term is most often encountered in the banking and stock exchange supervision of institutions, brokers and money management companies.
In short, KYC means the counter-party needs to be fully assessed and identified before a financial transaction is concluded. This requirement applies to thorough information on business partners, a legal entity, the nature of their activities and transaction history.
It also applies to the execution of financial transactions. Such practices are also believed to prevent money laundering, terrorism financing, and tax evasion.
The requirements and standards for the implementation of this principle and procedure are laid down at national legislation level. In particular, it is applied in regulations of banking supervision and international organizations, such as the FATF.
The consistent implementation of the KYC Procedure principle led to a gradual ban on maintenance of anonymous bank accounts.
Typical controls of the KYC Procedure
KYC controls typically include the collection and analysis of basic identify information. This can include identity documents, correspondence names with a list of known parties (including politically exposed persons).
This determines the client’s risk in relation to money laundering, terrorist financing or identity theft. The approach defines expectations of a client’s transaction behavior, then tracks transactions against this expectation and profile.
Transactions are also compared to the behavior of the client’s peers. In the modern day, the fight against international terrorism and criminally acquired assets has become a global concern.
As a result, specialized international organizations are vigorously implementing standards that require financial and administrative structures to scrutinize potential clients.
Financial organizations, accounting offices and law firms that accompany activities of commercial structures continue to be customer-oriented.