Know Your Customer regulations protect your business against fraudulent financial transactions. Here’s what you need to know about this policy.
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.
You will need to implement KYC procedures when you:
Among the basic pieces of information you must obtain include:
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.
Your business is covered by the regulation, and will need to register with HMRC, if it falls into any of these categories:
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).
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.
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.
Do you need help in managing your finances? Let us connect you with our accountants. Contact us now to learn the services that best suit your business. If you need more information about the outsourcing industry, you can also read our whitepaper, Outsourcing: How to Make it Work.