KYC is a term that often appears so most people know it. You go through KYC verifications when you open bank accounts, buy insurance and even make some investments. Financial institutions are required by law to have strict KYC compliance or they end up faced with countless huge fines and even having the business closed.
KYC can include so many different things, like customer acceptance policies, customer identification procedures, transaction monitoring and countless possible risk management practices.
Why Is KYC Compliance Important For A Business?
KYC has a really simple objective. It is implemented in order to prevent terrorist financing, financial fraud, identity theft and money laundering. Businesses that handle money for clients and are involved in financial transactions are forced by the law to use KYC. This includes practices that collect and then verify customer basic details, like:
- Name and address
- Authorized signatures
- Account owner identity
- A person or a business’ legal status
A business also needs KYC compliance when it:
- Seeks financial planning through registered financial advisers.
- Opens bank accounts and all subsequent bank accounts.
- Invests in business mutual funds.
- Offers money to customers.
- Manages accounts for customers and there is money in the accounts.
Do You Need KYC Compliance Practices Implemented?
Believe it or not, this is not an easy question to answer. If you are a financial institution like a bank or similar, you absolutely need KYC practices to be implemented. This is because it is required by law and failure to be compliant leads to huge business problems.
When you do not own a business that is directly managing funds for clients or just sells some services/products, answering the question is more difficult. You are not forced by law to do something but it might be a good idea to implement KYC procedures.
One thing that should be mentioned is that implementing KYC practices is not a bad idea even if it is not something that is obligatory. For instance, if you do know your customer as you sell regular products, like computer gadgets or food, you get a higher overall business security. It is not just the financial institutions that are targeted by identity fraud and other dishonest practices.
At the end of the day, there are 2 simple answers to the question:
- You need KYC compliance when the law tells you that you need it.
- You want to consider getting KYC compliance when its included practices would be beneficial for overall business security.
Final Thoughts
Unfortunately, KYC compliance is a really complicated topic that most people do not properly understand. It is not new on the market but most business owners still do not know much about it. Whenever you feel you have a lack of knowledge about KYC or you have doubts about whether or not you need to implement KYC procedures, the best thing you can do is contact a specialist. There are numerous companies out there that help you with KYC compliance. Just make sure you choose one that is as experienced as possible.