Part of a series on |
Finance |
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Part of a series on financial services |
Banking |
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Know Your Customer (KYC) guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved with maintaining a business relationship with a customer. The procedures fit within the broader scope of anti-money laundering (AML) and counter terrorism financing (CTF) regulations.
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 compliant and are actually who they claim to be. Banks, insurers, export creditors, and other financial institutions are increasingly required to make sure that customers provide detailed due-diligence 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 included in regulations.
KYCC or Know Your Customer's Customer is a process that identifies a customer's customer activities and nature. This includes the identification of the customer's customers and assessing the risk levels associated with their activities.[1]
KYCC is a derivative of the standard KYC process that arose because of the growing risk of fraud obscured by second-tier business relationships (e.g. a customer's supplier).[1]
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, terrorist financing, corruption, etc. KYB is significant in identifying fake business entities and shell companies. It is crucial for efficient KYC and AML compliance.
According to the European Union's 5th AML directive,[2] KYB is required for the following AML-regulated entities:
Electronic know your customer (eKYC) involves the use of internet or digital means of identity verification.[3] This may involve checking information provided is valid by using systems to validate ID and proof of address documents or by checking information against government databases such as the official passport database of a country.[4]
Criticisms of this policy include: