What are KYC and its 2022 status - Loan Trivia


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Thursday 30 December 2021

What are KYC and its 2022 status


What is Know Your Customer (KYC)?

KYC, or knowing your customer, is a method that businesses use to verify their clients’ identities before or during the time that they are doing business with them. In addition to KYC, regulated bank practices are also used to verify clients’ identities. Companies of all sizes have embraced KYC as an important security measure. 

KYC policies have grown to become an important tool in preventing illegal transactions in international finance due to issues such as corruption, terrorist financing, and money laundering. KYC protects companies and individuals by ensuring that they are dealing with legitimate entities and protecting individuals whom financial crimes would otherwise harm.

For several years, banks have relied on electronic identity verification to begin their KYC process. In some countries, this process is called the customer identification program. 

When determining whether or not an individual is involved in a financial crime, information such as names, social security numbers, birthdays, and addresses can be helpful. Usually, when this basic information is gathered, banks compare it with lists of individuals who are known for corruption, on a sanctions list, suspected of being involved with a crime, or at a high risk of taking part in bribery or money laundering.  Financial institutions also look at lists of Politically Exposed Persons, or PEPs. 

Thereafter, the bank quantifies how much of risk their client appears to be and how likely they are to get involved in corrupt or illegal activities. In order to make a more realistic forecast of a customer’s account, the bank uses this calculation. In place of an expected trajectory for an account, the bank can keep a close eye on the client’s account activity and ensure that nothing looks suspicious or out of place. 

Financial institutions can compare a client’s profile with that of his or her peers when doing this for one individual. It is expected that two clients interacting in their field will have accounts that look similar if they have similar occupations and backgrounds.




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