KYC
or ‘know your customer’ policy refers to documentation which sets out a
business’s approach to ensuring that it can effectively identify, verify and
monitor its customers and the financial transactions in which they engage,
relative to the risks of money laundering and terrorism financing.
Financial
institutions and other reporting entities should have a proper understanding of
their customers to satisfy their respective KYC obligations. It is equally
important that employees of these organizations are properly trained regarding
the importance of KYC and the specific KYC policies or procedures of their organization.
KYC
is important for a number of other reasons. For example, if a business knows
its customers well, it may be able to prevent damage to its reputation and
avoid fraud or excessive risk in financial transactions involving customers.
The principal objectives of a KYC policy include:
1. Ensuring that only legitimate and bona
fide customers are accepted
2. Ensuring that customers are properly
identified and that they understand the risks they may pose
3. Verifying the identity of customers using
reliable and independent documentation
4. Monitoring customer accounts and
transactions to prevent or detect illegal activities
5. Implementing processes to effectively
manage the risks posed by customers trying to misuse facilities.
