What’s the principle of "Know your customer" and how its online usage can secure your funds. In this article, you will find simple answers to these and other difficult questions about KYC.
Know Your Customer (KYC) is the process of a business verifying the identity of an individual or a business, before conducting a financial transaction with them. People usually come across this process in a bank because the bank has to identify an individual or a business before conducting a financial transaction.
Adherence to this procedure is a part of the international system of combating money-laundering and terrorism financing. Thus, the term KYC is often used along with the abbreviation AML (Anti-Money Laundering).
The "Know your client" requirements are incorporated in the national legislation of many countries, as well as in banking documents. Following KYC, organizations are able to monitor suspicious transactions of a client and report them to law enforcement agencies if any violations are found.
|Australia||The Anti-Money Laundering and Counter-Terrorism Financing Law (AML / CFT Law) is enforced along with KYC laws.|
|India||KYC guidelines developed by the Reserve Bank of India.|
|Italy||Requirements of the country’s Central Bank.|
|Canada||Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime|
|Kazakhstan||Law: On Combating Legalisation (Laundering) of Illegally Gained Income and Financing of Terrorism.|
|Luxembourg||Anti-Money Laundering Laws and Regulations (AML).|
|Namibia||Anti-Money Laundering Act.|
|New Zealand||Financial Transactions Reporting Act.|
|Russia||Federal Law: On Combating Legalisation (Laundering) of Illegally Gained Income and Financing of Terrorism.|
|South Africa||Anti-Money Laundering Act.|
|United Kingdom||Anti-Money Laundering Law.|
|United States||USA Patriot Act.|
KYC originated in the traditional financial world, but then it was applied in other areas as well. Now it is used by bookmakers, brokerage firms, and various funds. In this year, it has begun to be actively used in the cryptocurrency world.
The year 2018 was a breakthrough in this respect, because after the exchange rates and interest of the media about cryptocurrency grew in the last year, cryptocurrency attracted the attention of large institutional investors.
These investors, such as insurance organizations and credit banks, have great financial capabilities and also they manage other people's money. For example, representatives of Wellington Management, which manages $1 trillion, have indicated their interest in cryptocurrency investments.
Naturally, such market participants want to conduct the most transparent operations, and this pushes KYC into use in the cryptocurrency sphere.
For example, Japan is the most progressive country with respect to cryptocurrencies, so the KYC procedure in this environment has already become mandatory. In order to operate, cryptocurrency exchanges have to get a licence from the state, so it is impossible to trade on these platforms without going through KYC.
Following the general trends, the market recently even released a coin "AML BitCoin" (Anti-Money laundering BitCoin). Its creators, NAC Foundation, announced that the innovative code of this currency fully complies with the anti-money laundering policy.
The easiest way to describe the KYC process in practice is that an organization wants their clients to answer the questions: who are they and what do they do?
The client passes identification, i.e. confirms his or her identity to answer the first question. If the provided documents are completed and do not arouse suspicion, the client is allowed to carry out financial transactions. This is the simplest example of KYC, which could usually be encountered in a bank.
A more complicated example of "Know your customer" implies verification, which should confirm that that client is still the same client. During verification, the client’s newly entered data is reconciled with the primary data. Additional information may also be needed. For example, cryptocurrency exchanges may ask their clients to take a photo of themselves with the documents of the exchange.
Institutions monitor transactions in order to understand what their clients do. The company may pay attention to suspicious activity due to limits or other specified conditions. Also, operations that do not have a clear economic sense, or are not common to the client’s economic activities may cause suspicions.
Usually, organizations have a clearly defined KYC policy. So, when it comes to cooperation between the two companies, the identification process is only the first stage. Because it is important not only to obtain all the necessary documents about the client, but also to analyze them and evaluate his or her transactions in order to identify the potential risks of such cooperation.
When the institution evaluates the risks, it is important to consider not only how long the company is present on the market and the value of its assets, but also the geographical risks that may be associated with the organization’s location, legislation, and the political system.
Obviously, such processes require great effort and considerable time. So, according to a study conducted by the foundation Global Legal Entity Identifier Foundation (GLEIF) together with the analytical agency Loudhouse, the information analysis about new customers in the banking sector, including the Know Your Customer (KYC) expertise, lasts an average of six weeks.
According to a study by Thomson Reuters, which included experts from financial institutions and corporations from Europe, the USA, South Africa and the Asia-Pacific region. The time spent on the KYC procedure continues to increase; at the same time, costs increase which negatively affects the business.
* Data from the study of the fondation Global Legal Entity Identifier Foundation (GLEIF), was conducted along with the analytical agency Loudhouse.
Despite the rapid development of digital technologies and their confident introduction into each of our daily lives, KYC is still struggling to analyze mounds of paperwork.
Meanwhile, the digital identification process has several advantages over its more familiar predecessor. The first advantage is speed. Anyone from anywhere in the world can check the reliability of the organization at any time. In order to do this, you do not have to wait days or even weeks to prepare and collect the necessary documents. All you need is access to the Internet and a suitable device, for example, a smartphone.
The second great advantage is the security of each operation. Because the digital process adheres to the principle "Know your customer", it allows you to check the organization that you’re interested in before each transaction. This possibility is especially relevant in rapidly changing conditions, when a partner that was checked yesterday can already begin to raise doubts today.
You can get access to the full official information about your potential partner on our website. Our database contains the latest international data from official sources: registries of companies from different countries, court decisions, data from tax ministries, centers of intellectual property, and other organizations.
In order to check the information about the organization you are interested in, it is enough to enter its name into our database and you will receive complete information about the company: financial reports, information about licenses / permits, transactions (contracts, grants, loans, etc.), lists of sanctions and stop lists, data on court decisions, bankruptcies, liquidations, violations and so on.
The information in our database is constantly updated, so you can be sure you will receive the most recent and reliable data from reliable sources.
The ability to receive full official data about the organization of interest in real-time allows you to conduct small financial investigations and know exactly whether to work with this organization or not.
For example, the company's financial statements, or rather insufficient amount of their operations, can become a wake-up call. So, if the organization has the all time profit of 1,000,000 USD, but they were earned through one tender, it can be concluded that something suspicious is happening.
Another way to figure out whether or not to deal with this company is to look at the organizations your partner works with. If all transactions are concluded with the same government agency during the tender, it is possible that corruption is involved.
For example, a useful piece of information is whether or not the company has changed its name. If it changes names quite often, it has to raise a question why your partners rebrand so frequently and whether you should trust your finances to this organization or not.
It is important to pay attention to seemingly irrelevant details such as the legal address. If many companies are registered to one address, this most likely means that the organization does not have an office, which can also become a reason for suspicion.
As you can see, when using our site, applying "Know Your Customer" can give you a number of advantages. First, you can significantly save the time spent on the search of the information you need about the company you are interested in. You can cut a several weeks of waiting for a full package of documents with one short query in the search bar of our site.
Secondly, you can check the data when you need it, even before you make another deal with the company. It is very difficult to request a package of documents from a partner both for you and for the partner organization before each transaction. However, you can use our service as often as you like.
Thirdly, our site allows you to get full access to official information about the institution, including the information that the company does not want to be known; for example, court decisions or information about excessively frequent name changes. Having access to this information, you can conduct a detailed financial analysis of the organization and completely understand who you’re working with.