Who Is Your Customer? Know Your Customer (KYC)
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Who Is Your Customer?
A customer is a person, including the individual, business, corporate, organization, etc. to whom the products and services are provided, as part of the business relationship.
Customers are the source of business and profits for the organizations.
Customers are required to be treated with care and in an ethical manner, and regulatory authorities require companies and organizations to ensure that fair dealing policies and practices are adopted and implemented.
Types of Customers?
Customers may be real person or individuals or legal businesses or entities.
Customers usually include salaried individuals, business start-ups, sole proprietors, traders, housewives, small and medium enterprises, corporate entities, not-for-profit organizations, charitable organizations, welfare trusts, governmental organizations, etc.
Nature and types of customers vary from organization to organization.
Customers may belong to different jurisdictions or countries therefore; they pose varied nature of risks to the organization. The needs of customers vary according to their type and the jurisdiction to which they belong.
Customers of Financial Institutions?
When we talk about the customers of the financial services industry, they include:
- salaried individuals,
- business start-ups,
- sole proprietors,
- traders,
- housewives,
- students,
- small and medium enterprises,
- corporate entities,
- not-for-profit organizations,
- charitable organizations,
- welfare trusts,
- governmental organizations,
- Institutions. etc.
Customers deposit their funds or invest their funds with financial institutions to earn returns or customers buy the products or services that are offered by the financial services companies.
Know Your Customer (KYC)
In general, knowing your customer means that to appropriately identifying the people or organizations with whom you are doing business or selling your products or services.
Banks and financial institutions are exposed to money laundering and terrorist financing risks, therefore they are required to ensure that applicable AML/KYC regulatory requirements are identified and complied with. Banks and FIs are attracted by the money launderers because they find it easier to hide, use or transfer their black money.
Financial crime includes the conversion of ownership of assets by the person for personal benefit or advantage.
Financial crime is the act of using the financial system to perform criminal activities, including money laundering activities.
Financial crime results in reputational losses, and loss of business and customers.
The occurrence of financial crime in an institution may lead to significant penalties from the regulators, therefore, appropriate anti-money laundering and terrorist financing (AML/CFT) measures are to be applied, before onboarding any customer and providing any product or services.
02 Use of Data Analytics by Compliance Function
Identification and Verification
Identification and verification of customers are to be performed before onboarding and after onboarding as well, because customers; profiles may change over a period of time, therefore, institutions perform periodic KYC of their customers to update the internal customer record.
To achieve this objective appropriate Know Your Customer and Due Diligence measures are adopted and implemented by the organizations.
The KYC/CDD measures are made part of the organizational policies and procedures, considering the applicable AML/CFT and KYC requirements, prescribed by the relevant regulators.
Individuals
Identification of customers includes obtaining identification information, which may include the National ID card information, Passport, Photo, etc.
Information obtained from prospective customers must be verified from appropriate and reliable sources.
For example, the National ID Card information may be verified from the national database, through the proper channel.
As part of KYC / CDD, the source of income and funds of the prospective customers must be identified before onboarding.
For example, if the prospective customer is a salaried individual, then a salary slip and employment letter or detail should be obtained and verified.
In the case of a Sole trade, the business location, type of business, and financial record should be obtained to assess the reasonableness of the source of income and financial information, etc.
Legal Entity
For legal entities, various other identification information is obtained, including the legal entity documents, such as:
- the license,
- registration certificate,
- memorandum of association,
- articles of association,
- leadership profiles, including CEO and Board members,
- detail of the principal officer authorized to operate the account,
- beneficial ownership details,
- business details,
- registered offices or branches detail,
- financial statements, etc.
For a legal entity verification, the KYC and CDD process may vary, but in general, the verifier should check:
- the registration detail from the registrar,
- visit the business location and website of the customer for proof of address, business activities, etc.,
- verify the details of the beneficial owner from reliable sources,
- perform negative media searches,
- verify the identification information of the leadership and principal officers from the national database, etc.
Name Screening
As part of customer KYC, the names of the customers including beneficial owners are to be screened from various negative databases and negative lists, maintained, available or provided by regulatory authorities.
Names of the prospective or existing customers are screened from the negative lists, to ensure that the customer is not the person who is banned or declared as a criminal or associated with any criminal group or activity.
