Know Your Customer regulations protect your business against fraudulent financial transactions. Here’s what you need to know about this policy.
What is “Know Your Customer” (KYC)?
Know Your Customer (KYC) is the mandatory process of verifying a customer’s identity to prevent money laundering, terrorism financing, and other forms of illegal financial activities. It ensures that your business is only dealing with ‘clean’ money or assets with no evident link to any criminal activity and thus, protecting your business from being used for fraud or corruption.
At first, KYC regulations were imposed solely on financial institutions. But today, as governed by the UK Money Laundering Regulations 2017 (also known as Anti-Money Laundering law), even non-financial businesses and non-profit organisations must adhere to its policies.
When do you need to implement KYC procedures?
You will need to implement KYC procedures when you:
- establish new business relationships,
- evaluate existing customers, if necessary,
- assess suspicious customer documents, or
- suspect money laundering or terrorist financing activities.
Among the basic pieces of information you must obtain include:
- customer identity (name, contact details, residential address, date of birth, government-issued document such as passport),
- source of funding for financial activities (bank statements, utility bills, or any related document), and
- money laundering risks associated with the customer.
In cases where you detect suspicious transactions while examining your customer’s financial crime risk, you must report it to the appropriate supervisory body.
Meanwhile, if you fail to comply with the Anti-Money (AML) Regulations in the UK, you may have to pay a penalty of up to £1,500 to HMRC. In addition, you may have to undergo criminal prosecution for more serious offenses.
Is your business covered by the regulation?
Your business is covered by the regulation, and will need to register with HMRC, if it falls into any of these categories:
- Accountancy service providers not supervised by a professional body
- Art market participants
- Financial service businesses
- Money and/or bill payment service businesses not supervised by the Financial Conduct Authority (FCA)
- Estate agency businesses
- Trust or company service providers not supervised by FCA
- High-value dealers
- Letting agency businesses
- Telecommunications, digital, and IT payment service providers not supervised by the FCA
- Gaming and casinos
Meanwhile, you will also need to register any relevant premises including your office, home address (if you do not have a business office), virtual office, call centre, shop, auction house, or cruise ship (within UK territorial waters).
An ongoing effort
Conducting customer due diligence (CDD) is an ongoing effort. Even after verifying your customers’ identities, you’ll still need to monitor their transactions regularly. Some elements you must look out for include unusual spikes in activities, out-of-area or cross-border transactions, and adverse media mentions.
Aside from this, it’s also good to conduct periodical reviews of your customers’ accounts and their associated risks. This way, you can take the appropriate measures before they can cause damage to your business.
Protecting your customers’ data
Gaining access to your customer’s sensitive data is necessary when reviewing their identity and risk levels. As a business entity handling such crucial information, it is your responsibility to secure their data and protect it from fraudsters.
To ensure you’re on track, refer to the Data Protection Act of 2018.
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