The acronym KYC (Know Your Customer) was first coined in the United States.

The term was rapidly adopted in Europe, particularly in the banking sector, where knowing your customer is critical.

What is KYC and how should we comply with it?

Know Your Customer (KYC) is the process of carrying out due diligence to verify the identity of key stakeholders of a company.

This applies to clients, suppliers and partners. To what end? To ensure their integrity and verify their compliance with current regulations.

The raison d’être of KYC guidelines is to fight against financial crime in its multiple forms, such as corruption, money laundering or the financing of terrorism.

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KYC: inextricably linked to customer intelligence and the transparency of financial transactions

Know your clients, suppliers and partners

Customer intelligence is not a new principle. However, appearances can be deceptive, and KYC can help shed light on areas of darkness.

Today, it is essential that companies submit all the stakeholders with whom they are involved to a process of due diligence, in other words, a KYC process.  Because knowing your customers, suppliers and partners has become a necessity.

By being able to prove its good faith, the company reduces the risk of being held accountable in case of problems with national and international legislation.

Fighting against corruption

A robust system, built on the application of customer and partner due diligence procedures (KYC) helps businesses avoid being unknowing participants in illegal financial activity.

Money laundering, fraud and corruption all constitute risk factors which can directly or indirectly harm any business.

Consequently, companies must incorporate measures into their Risk Management and Compliance system in order to help fight money laundering and terrorist financing.

How should you tackle KYC? Spotlight on the must-have tools to know your customer better

The entire KYC circuit relies on obtaining, tracing and storing the documents needed to assess the integrity of your stakeholders. For banking institutions, the complexity of the identification process is such that they have to use the services of external providers. They have to be able to access very vast databases and be able to analyse complex intra-corporate ownership and holding relationships.

Before jumping in to such complexity, it is important that all business data should be centralised in one tool: a CRM software solution (Customer Relationship Management). Sitting at the heart of your information system, these tools are specifically designed to consolidate all relevant customer data and give a comprehensive view of all the interactions with any given customer. This means that, by offering high-quality customer intelligence, a CRM solution can become one of the pillars of a KYC strategy.

Legal aspects of KYC

A duty of due diligence and information

Businesses have a twofold obligation with regard to KYC.

The first concerns a duty of due diligence in the fight against money laundering and the financing of terrorism.

The second is an obligation to caution investors and borrowers.

New, independent supervisory bodies are gradually emerging to oversee financial institutions.

Sanctions

Because of a number of historical abuses, and to prevent them from happening again, banking and financial groups are subject to very heavy fines, sometimes reaching up to several hundred thousand Euros.

In addition to this, the risk of such an incident tarnishing the company’s image can have significant repercussions on its reputation and so, too, on its business.

The banking sector is the most directly affected by KYC. However, whatever the size of your company, whatever the sector in which you operate, it can never be stressed enough: customer intelligence is the crux of the matter.

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