Do you know your customer? You better, if you’re a financial institution (FI) or you face possible fines, sanctions and maybe even public ridicule if you do business with a money launderer or terrorist. More importantly, it’s a fundamental practice to protect your FI from fraud and losses due to illegal funds and transactions.
“KYC” refers to the steps taken by a financial institution (or business) to:
To create and run an effective KYC program requires the following elements:
How do you know someone is who they say they are? After all, identity theft is widespread, affecting over 13 million US consumers and accounting for 15 billion dollars stolen in 2015. If you’re a US financial institution, it’s more than a financial risk; it’s the Law.
The CIP mandates that any individual conducting financial transactions needs to have their identity verified. As a provision in the Patriot Act, it’s designed to limit money laundering, terrorism funding, corruption and other illegal activities. The desired outcome is that financial institutions accurately identify their customers:
A critical element to a successful CIP is a risk assessment, both on the institutional level and on procedures for each account. While the CIP provides guidance, it’s up to the individual institution to determine the exact level of risk and policy for that risk level.
For any financial institution, one of the first analysis made is to determine if you can trust a potential client. You need to make sure any potential customer is worthy; customer due diligence (CDD) is a critical element of effectively managing your risks and protecting yourself against criminals, terrorists, and corrupt Politically Exposed Persons (PEPs).
There are three levels of due diligence:
It’s not enough to just check your customer once, you need to have a program that knows your customer on an ongoing basis. The ongoing monitoring function includes oversight of financial transactions and accounts based on thresholds developed as part of a customer’s risk profile.
Up to now, regulations call for a risk-based assessment. However, as of January 1, 2017 The New York Department of Financial Services (NYDFS) requires specific measures of transaction monitoring and filtering.
$60 million. $300 million. One month, four months? Welcome to the well-meaning but truly inefficient world of onboarding and KYC — where financial services firms are mired in manual processes and where wait times are forever, and expensive.
In spite of heavy investments, FIs have been unable to optimally counter the growing peril of money laundering. Regulatory fines on FIs for KYC/AML related violations continue to rise.
Aadhaar-enabled electronic know your customer (KYC) process should be “firmly established” as the acceptable KYC, a panel with representatives from all financial sector regulators has proposed.
Money laundering is an ever expanding problem for the American insurance industry. An increasing number of individuals are using insurance accounts to hide money from federal taxation agencies – and the industry needs to step up and tackle the situation head-on.
The Monetary Authority of Singapore (MAS) is piloting a national know-your-customer (KYC) utility for financial services, based on the MyInfo digital identity service, jointly developed by the Ministry of Finance and GovTech, the lead agency for digital and data strategy in Singapore.
“The message to all financial institutions is clear: The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes,” says Steve Pannifer, COO, Consult Hyperion.
Alan Samuels, vice-president and head of product strategy for reference data services at Alacra, said: “There is a clear regulatory need for meeting high standards. This is creating more and more challenges for operational managers to build flexible, scalable processes and systems to be able to address use cases that have not yet even been articulated.”
The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Job Card.
Under Republic Act 9160 or the Anti-Money Laundering Act (AMLA), banks and other financial institutions, including remittance centers and pawnshops, are mandated to institute “know your customer” (KYC) rules that ensure the legitimate source of funds.
AUSTRAC has revised Chapter 4 of the AML/CTF Rules in a few small but significant ways. These changes came into effect on 16 September 2016.
The Bank of Thailand (” BOT “) has introduced a new regulation to facilitate the Know-Your-Customer (KYC) process by using an electronic means (” e-KYC “) for account opening for deposit acceptance or fund acceptance from public.