Hello, welcome to the second instalment of our MemberCheck Explainers, a series of bite-sized videos, where we’ll talk about the all-important acronyms you REALLY should know in AML risk management, what they mean, and why they matter.
In our previous episode, we talked about AML, or Anti Money Laundering.
In this episode, we’ll learn a new acronym - KYC. Not to be mistaken with the popular fast-food chain.
Have you heard or seen this acronym anywhere lately? If you work in banking, then no doubt you may have come across it before.
KYC stands for "Know Your Customer".
It is a customer identification process that organisations use to verify the identity of their customers.
The goal of a KYC process is to prevent fraud and money laundering by ensuring that organisations know who their customers are, and that they truly are whom they claim to be.
By conducting KYC checks, organisations can ensure that they are providing services to legitimate customers, and not exposing themselves to AML risks.
As a reporting organisation or entity, it is essential that you apply customer identification procedures to every single customer you onboard.
These procedures differ based on the level of AML risk that different customers pose, and the KYC legislations applicable to each country.
Over in the USA, the KYC guidelines are set by the USA PATRIOT Act.
The UK has a similar legislation in place; however, the guidelines are set by the Financial Conduct Authority (FCA).
Down under, the KYC laws are set by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
These three bodies have distinct KYC regulations. Organisations operating in a particular nation must adhere to the local KYC regulations to be compliant.
For example, in the USA, KYC legislations are strict, and financial institutions are required to obtain detailed information about their customers before conducting any business with them.
In contrast, KYC legislations in the UK are not as stringent, and financial institutions are only required to obtain basic information about their customers.
The KYC legislations in Australia fall somewhere in between the USA and UK.
Australian organisations are required to obtain detailed information about their customers, but they are not required to obtain this information upfront. They must then take reasonable steps to verify the identity of their customers as well as keep records of all their transactions.
As a result, all reporting organisations and entities need to be aware of the different KYC legislation in each country to ensure compliance.
The consequences of not complying to KYC procedures properly can be severe.
If an organisation is found to be in breach of AML compliance in any capacity, they could be subject to heavy fines, reputational damage, stricter operating conditions, and in extreme cases, even imprisonment.
It is the responsibility of the organisation to comply appropriately to all KYC requirements.
In doing so, organisations can play a key role in preventing money laundering, terrorism financing, and other illegal corruption schemes.
That’s all the time we have for today for this episode on KYC.
Now that we’ve had a look at commonly used industry acronyms like AML and KYC, we hope that you’re starting to see the bigger picture when it comes to AML risk management.
If you would like to know more about how we can help you build trusted interactions by mitigating fraud and risk, go to our website at www.membercheck.com
We’ll see you on our next episode, where we break down the possible differences between AML and KYC.