Full Form of KYC
Know Your Customer
KYC Full Form is Know Your Customer. KYC is a term which is normally used in the investment industry including banks for customer identification. KYC was introduced by RBI (Reserve Bank of India) in order to prevent money laundering, financial fraud, identity theft, illegal transactions and terrorist financing through banks. The customer of a financial institution is expected to provide the details like his or her name, father’s name, mother’s name, date of birth, address, contact number, marital status, PAN card number etc. With this information, banks are able to identify customers and serve them in a better way.
KYC Full Form – Additional Information
Know Your Customer, which will be hereinafter referred to as KYC throughout the article, refers to the verification process of business in which the identity (ID) of the clients is verified. KYC is often used in reference to bank regulations, which are responsible for the governance of such activities relating to verification. KYC processes are being employed by corporations of all kinds of sizes with the aim of ensuring that their proposed consultants, agents, or distributors show antibribery compliance.
Insurers, export creditors, and banks have now started demanding that their customers provide a comprehensive due diligence anti-corruptive information for the purpose of identification of integrity and probity. KYC is becoming increasingly popular both in India and aboard because it is one of the best as well as most effective methods against financial fraud, identity theft, terrorist financing, and money laundering, etc.
KYC is one of the most popular processes undertaken by business enterprises and therefore, holds great relevance. So, with the aim of understanding more about KYC, there are few things that everyone must about it. So, here are five points about Know Your Customer process that every person must know:
Standards of KYC
The primary purpose of KYC is the prevention of using banks with or without intention by criminals for the purposes of fraudulent transactions, money laundering, terrorist financing, etc. The process enables the banks and other enterprises to know about their customers better and also have a comprehensive account on their financial dealings. KYC, therefore, contributes to the reduction of risks.
The following are key ingredients in a typical KYC policy:
- Customer Identification Procedures
- Risk Management
- Customer Policy
- Monitoring of Financial Transactions
Typical controls under KYC policy
KYC undertakes many control measures on the customers and some of them have been mentioned below:
- A collection of basic information relating to the customer and analysis of the same. This is usually referred in the United States of America as the Customer Identification Program (abbreviated as CIP) which is targeted at creating a comprehensive database on the concerned customer.
- Determination of risk by analyzing probabilities of engagement in money laundering, fraudulent transactions, corrupt activities, etc.
- To conduct name matching against all the lists including known parties for example Politically Exposed Person (abbreviated as PEP).
- Under this policy, the banks can chart behavioral patterns of its customers and use the so collected data in the analysis.
- To monitor transactions of the customer against normally expected behavior and recording profile of the peer customer groups.
The banks are free to adopt whatever measures under KYC policy that adhere to the principles of the policy and at the same time help in reducing risk.
KYC Laws according to country
KYC policy undergoes variations from one jurisdiction to another. The laws on KYC might differ depending on the country concerned.
- New Zealand: The laws on KYC were updated and modified in the year 2009, which came into force in the following year. KYC is compulsory for all registered financial institutions and banks.
- United Kingdom: In the UK jurisdiction, the Money Laundering Regulations 2007 embody the principles and rules relating to KYC. Guidelines have been provided by the European Joint Money Laundering Steering Group, which are usually followed by businesses operational in the UK.
- South Africa: The principles and laws governing KYC policies have been laid down in the Financial Intelligence Center Act (abbreviated as FICA).
- India: In the year 2002, the RBI came up with several guidelines on the implementation of KYC in all banks. In the year 2004, the RBI issued a directive asking the banks to ensure full compliance with the KYC provisions by December 31, 2005.
- United States of America: The KYC policy has been incorporated in pursuance of the USA Patriot Act 2001. Rules and regulations have been incorporated for the purposes of Customer Identification Program (abbreviated as CIP).
Enhanced Due Diligence
KYC places the Enhanced Due Diligence (abbreviated as EDD) standard for rich customers and transactions. In the United States, the EDD measures are applicable to different types of accounts such as Correspondent Account, Private Banking, and Offshore Banking Institutions. The standard of EDD differs from one jurisdiction to another because there is no set definition of the same.
Some of the characteristics of EDD are as follows:
- It accounts for a robust and rigorous process. It requires documentation of the process so that there is the scope of inspection for the same.
- EDD places its reliance upon Initial Client Screening. The EDD process is a tiered process that takes into account the risk posed, the quality of information, etc.
- It talks about reasonable assurance, which depends on many factors such as risk, jurisdiction, technology, and resources. What is to be taken into account is the balance of probability.
- EDD takes into account adverse information, whether available physically or virtually, that indicates engagement in activities like money laundering or finance frauds.
Documents
On the official website of RBI, the KYC programme has been explained. Therein it has been stated that for the purposes of proof of identity as well as proof of address, the Union Government has notified 6 documents for the same, which include Aadhar Card, NREGA card, Passport, Voter’s Identity Card, Driving Licence, and PAN card. For the purposes of the KYC process, the customer is required to submit any of the aforementioned documents for proof of identity and address. In case the document submitted does not have details of address, then another document that has such detail is to be submitted.
KYC Full Form: Know Your Client
Full Form of KYC stands for Know Your Client. This is a standard form that provides investment advisors all information about the investment knowledge, risk tolerance and financial position of the customers. The purpose of KYC form is to protect both investment advisors and clients. Clients are benefited by making their advisor aware of what type of investment that suits them best, based on their financial situations.
On the other hand, KYC helps investment advisor to know what they can include in their customer portfolio.In simple terms, KYC helps businesses to verify client identities. It is often a process of bank regulations. And KYC is also employed by companies of varied sizes to ensure anti-bribery compliance of their consultants, distributors, and agents.