How does your customer know that KYC is ready

Know your customer

As Know your customer (KYC; German: know your customer) denotes a legitimation check of important new customers, which is prescribed in particular for credit institutions and insurance companies, in order to prevent money laundering[1][2].

backgrounds

In order to combat money laundering, criminal machinations as well as economic crime and terrorism, international minimum standards for the identification of new customers have been created. These rules are intended to prevent funds from being carelessly shifted back and forth via bogus companies, for example. Before opening an account for new customers, the KYC must be used to check who the customer is, what the business model looks like and where the financial flows come from.

Legal basis

The decisive basis for the KYC requirement of European financial companies is Article 8 in the 3rd EU Anti-Money Laundering Directive[3]. “Standard small customers” who do not want to do particularly extensive or particularly unusual business and who have been assigned to a correspondingly safe risk class in advance can be excluded from the general check.

These reviews are also important from the point of view of a wide variety of laws and regulations on counter-terrorism and compliance. In particular, various national laws and regulations of international organizations prohibit business with certain people and countries. If, for example, the special regulations of the United States are not adhered to, the financial companies face severe fines, imprisonment for senior staff, and even withdrawal of their entire business license. In addition, the reputational risk that negative headlines can cause if there is a lack of control should not be underestimated.

Information to collect

In the case of natural persons, in particular the type of professional activity and the purpose of the business relationship must be recorded.

In the case of legal entities, the type of company, activity, industry, industry code, number of employees, ownership and company structure as well as the most important (expected) financial indicators must be recorded.

Furthermore, the origin of funds and assets must generally be clarified. The details of the planned customer relationship such as the scope and payment types, for example, must also be noted.

In the case of politically exposed persons (PEP), the function and place of exercise must also be recorded.

All persons significantly involved in the creation of the KYC as well as subsequent changes to the KYC master document must also be logged.

Individual evidence

  1. ↑ Whitepaper: KYC - Know Your Customer
  2. ↑ https: //www.bmf.gv.at - Know your customer
  3. ↑ DIRECTIVE 2005/60 / EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of October 26, 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing