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Know Your Customer – What is KYC?

What is Know Your Customer?

‘Know Your Customer’ might sound like a pretty generic expression, but in the financial world, the term has a specific meaning. It is the responsibility of every business to make sure their customer is who they say they are, and Know Your Customer (KYC) is the process of doing so.

The phrase Know Your Client is also often used.

Why is Know Your Customer important?

Know Your Customer is a set of guidelines that protect your business by making sure all your transactions are carried out legally, and using legally obtained money. The responsibility lies with the business to ascertain these things, so by following KYC regulations your business can avoid some hefty fines.

Money laundering is one of the most common financial crimes faced by businesses, banks and financial institutions. Billions of pounds are laundered all over the world each year, and businesses in the financial sector are a particular target for this because of the amount of money they handle. Money laundering hurts all kinds of businesses, cutting profit margins by as much as 10%.

Identity theft is another huge issue that Know Your Customer helps to guard against. It’s important to check your customers are who they say they are, so you know they aren’t spending money with you in someone else’s name.

What’s involved?

To guard against financial crime, you should check if your customer is a real person or business. For individuals, ID such as a passport will suffice to prove their name, date of birth, and country of residence. You can cross reference this with proof of their address or another layer of proof to ensure their ID is legitimate. For businesses, ask them to supply a copy of their Certificate of Incorporation to prove that they definitely exist. This should all be carried out at some point in the on-boarding process of a new customer.

As well as making these checks at the start of the relationship with the customer, it’s also a good idea to make it an ongoing process, collecting further information such as the kind of business your customer does or the country the business is based in, to see if they are ‘high-risk’ for financial crime. If you’re able to keep an eye on regular behaviour for that customer in relation to your business, for example the frequency and times of day they use your service, you’ll be more likely to identify unusual and possibly fraudulent behaviour. You can also check to see if individual customers are listed as Politically Exposed Persons (PEPs) – people who are considered higher risk for corruption and bribery because of their position.

Know Your Customer and GDPR

GDPR regulations exist to improve the security of businesses. They place the responsibility on the organisations to ensure the safety of customers’ bank details, address and other private information.

Naturally, this relates to Know Your Customer because of the amount of information you will have to collect to validate your customer’s identity. It is the responsibility of the business to keep this safe, or otherwise face huge fines. So, what are the best ways to keep your organisation’s data secure?

  • Anti virus software.
    As a baseline, it’s a good idea to have anti virus software on all of your company devices.
  • Store data on the cloud.
    Cloud storage is extremely secure, with very heavy duty firewalls and other top of the line security features.
  • Educate staff about social engineering.
    One of the most common ways that sensitive data is stolen is not any high-tech hacking – it’s simply manipulating people to give out their passwords freely. This means emails designed to look like legitimate companies, asking for login details, or phone calls from the ‘bank’ asking you to answer some security questions.

Learn more: Know your customers to prevent online fraud