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The words Know Your Customer in the financial sense describe the process by which a bank or financial institution checks the identity, background and other aspects of the source of wealth of potential and existing customers. Also known as KYC, legislation and regulation require firms to obtain evidence of identity of a customer at take-on and to keep a record of that evidence for as long as there is a relationship with a customer. Legislation and regulation also require a firm to keep up to date its knowledge of a customer throughout the life of the relationship, so that changes in the customer's activity can be assessed and dealt with – all with the principal aim of preventing Money Laundering and Financial Crime.
Money Laundering is the term used to describe the use of the financial system by criminals to hide the source of funds gained from illegal activity such as drug trafficking, bribery, extortion, embezzlement, theft or other criminal activity, as the criminals try to make their ill gotten gains appear genuine. Anti Money Laundering is the term used by banks and other financial institutions to describe the variety of measures they have to combat this illegal activity and to prevent criminals from using individual banks and the financial system in general as the conduit for their Proceeds of Crime.
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Strict legal and regulatory requirements require financial institutions to "Know Your Customer" - having adequate information to make risk-based decisions at a number of stages in the customer relationship – at take-on, during the annual reviews and when customer activity changes and a decision may be required to exit the relationship.
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A financial institution does not want to fall foul of legislation or regulation and have to face lengthy and costly criminal investigations or costly regulatory fines. Laws are well established in developed financial centres, such as the UK with the Proceeds of Crime Act or the USA with the USA Patriot Act but emerging economies around the globe are implementing legislation and regulation which is as tough as these laws.
A business does not want to make the wrong decisions when looking at any type of customer, be it an individual or a corporate, and especially at times of volatile economic conditions and when exploring new business in emerging markets. Good quality know your customer processes will ensure that a business knows the source of wealth an individual brings to them, as well as the identity and background of the shareholders and key principals behind a corporate entity or joint venture. This provides two key benefits for the risk-aware financial business – first, comfort that the firm is not exposing itself to excessive risk of being used by criminals to launder the Proceeds of Crime; and second (and equally important), sufficiently detailed knowledge of the customer’s source of wealth and financial position to be able to sell products which are appropriate and which help the customer and the firm to make money.
Legislation and industry guidance in the major financial centres requires firms to adopt a risk-based approach to its money laundering programme, taking into account the levels of risks in the customer, the jurisdiction, the product and the mode of product delivery. The assessment of the level of risk of the customer is a key part of that risk-based approach, enabling a firm to establish a sound basis at the outset of a customer relationship for its future product delivery and customer monitoring. Many firms use automated systems as a cost-efficient means to access key evidence of identity and background data.
Similarly, during the life of a customer relationship, the firm wants to be able to carry out checks on a customer's transactions to make sure that they are genuine and to be able to research any which may appear unusual. In particular with transactions, a firm must be able to complete due diligence very quickly where there are concerns, to be sure that settlement or delivery is completed on or by the planned value date – a firm does not want to have to be paying back-value for delaying a transaction when speedier due diligence could have avoided it. Good quality Know Your Customer work will allow a firm to be efficient in this area and not waste time or hard earned money.
Knowyourcustomer.net gives you access to a wide range of advice, systems and materials which ensure that you can carry out your checks on your customers at take-on and during the life of the relationship to the level expected of you by legislation and regulation. Additionally the products featured here assist you to exclude criminals, determine whether your customer is low or high risk and monitor and review them accordingly, and make decisions during the life of the relationship. You will then be able to comply with stringent legal and regulatory requirements, keep the criminals away from your doors and protect your reputation.
In all major jurisdictions around the world, criminal legislation and regulation make it mandatory for banks and financial institutions to have arrangements to combat Money Laundering, with harsh criminal penalties for non-compliance. World-check is the leading tool which helps firms to meet legal requirements and run a safe business in the ongoing fight against financial crime.
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