Know Your Customer (KYC) | Binance Academy (2024)

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Know Your Customer (KYC)

KYC refers to a process that banks and other financial institutions use to gather identifying data and contact information from current and potential customers. Its purpose is to prevent fraud, money laundering, and other illicit activity, as well as the misuse of financial accounts.

In the US, Banks are legally mandated to use KYC in compliance with the 2001 USA Patriot Act. In 1989, the Financial Action Task Force (FATF) was established to fight money laundering on an international scale. FAFT sets standards and provides recommendations to accomplish this goal through Anti-Money Laundering (AML) practices. Member countries and jurisdictions enforce various laws, rules, and regulations to work with the AML guidelines. KYC and AML go hand-in-hand in helping to prevent dishonest and criminal financial activity.

KYC practices usually start before an individual becomes a customer. Financial institutions must first verify the stated identity of a potential customer before opening an account. Because there are no legal verification standards, this process may look different for each bank.

Some identifying documents required by KYC processes include:

  • Driver’s License / Government-issued photo ID

  • Passport

  • Social security number

  • PAN card

  • Voter ID Card

Address verification is also necessary. Applicants may submit different documentary proof, depending on the bank’s practices. Some examples include a utility bill, account statement from a different bank or credit card issuer or a lease agreement.

After providing a customer with an account, banks are required to perform periodic record updates. This means they continue to “recertify” their customers with intermittent requests for KYC information throughout their banking relationship. They also assign a risk level to their customers and monitor customer transactions to ensure they match expected behavior.

KYC practices aren’t limited to banking institutions. The financial investment industry uses KYC processes in compliance with the Financial Industry Regulatory Authority (FINRA) KYC Rule 2090. But rather than an AML effort, these KYC practices help investment companies better understand client needs.

When it comes to cryptocurrency exchanges, users are often able to create an account before concluding the KYC process. However, these non-verified accounts present limited functionalities.

Reducing and eliminating money laundering and financial fraud is the clear advantage of KYC practices. While it makes things more complex and time extensive - especially for the banking industry and its customers - the benefits likely outweigh the inconvenience. Though standardized practices would likely help streamline the process.

In the cryptocurrency realm, the use of digital currency to perform Illicit activities has received lots of attention. Reducing that down is certainly beneficial to cryptocurrency and its reputation. Compliance is time-consuming but should always be encouraged. However, users should not provide sensitive identifying information without first assuring that the company implements the necessary security standards to keep the data safe.

Know Your Customer (KYC) | Binance Academy (2024)

FAQs

What is the KYC rule for Know Your Customer? ›

Know Your Customer (KYC) guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved with maintaining a business relationship with a customer.

What is the KYC process of Know Your Customer? ›

KYC or KYC check is the mandatory process of identifying and verifying the client's identity when opening an account and periodically over time. In other words, banks must ensure that their clients are genuinely who they claim to be.

What are the KYC regulatory requirements for Know Your Customer? ›

What are the requirements to “Know Your Customer”?
  • Customer Identification Program. At the minimum, firms must pull four pieces of identifying information about a client, including name, date of birth, address, and identification number. ...
  • Customer Due Diligence (CDD) ...
  • Enhanced Due Diligence (EDD)

What are the key elements of Know Your Customer KYC )? ›

What are the main elements of KYC? All effective KYC regimes are made up of three key components: identity verification, customer due diligence, and ongoing (automated) monitoring.

What are the 4 pillars of KYC? ›

The four pillars, or four KYC elements, that banks and financial institutions look at when setting up their KYC programs are the customer acceptance policies and procedures, customer identification program and customer due diligence, risk management, and ongoing monitoring.

What are the 5 stages of KYC? ›

The five stages of KYC – customer identification, customer due diligence, risk assessment, ongoing monitoring, and reporting suspicious activities – are essential to ensure compliance with regulatory requirements.

How to do KYC step by step? ›

Generally, this is what goes into physical KYC verification:
  1. Step 1: Contact the Bank. ...
  2. Step 2: Gather the Required Documents: ...
  3. Step 3: Visit the ICICI Bank Branch: ...
  4. Step 4: Fill out the KYC Application Form: ...
  5. Step 5: Submit the Required Documents: ...
  6. Step 6: Verification Process: ...
  7. Step 7: Confirmation and Completion: ...
  8. Video KYC.

What is a KYC checklist? ›

Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures are crucial for safety and security. KYC checklists verify client identities, while AML prevents money laundering. Therefore, a comprehensive KYC system is essential to prevent crimes, comply with regulations, and maintain a good reputation.

How much does KYC cost? ›

Finance Minister Nirmala Sitharaman had said that Aadhaar has brought down the cost of KYC to ₹3 from as high as ₹700.

When should the Know Your Customer process be performed? ›

Banking accounts: Identity verification and due diligence are paramount in assessing money laundering risks associated with new accounts. Investment accounts: During onboarding, investment firms should employ KYC measures to assess clients' risk profiles and ensure the legitimacy of financial activities.

What are the six officially valid documents for KYC? ›

KYC Documents Individuals
  • Passport.
  • Voter's Identity Card.
  • Driving Licence.
  • Aadhaar Letter/Card.
  • NREGA Card.
  • Letter issued by the National Population Register containing details of name and address.

What is KYC in simple words? ›

KYC means "Know Your Customer". It is a process by which banks obtain information about the identity and address of the customers. This process helps to ensure that banks' services are not misused. The KYC procedure is to be completed by the banks while opening accounts and also periodically update the same.

How to fill out Know Your Customer KYC form? ›

Online method
  1. Visit any of the five KRA's or any financial institution's website.
  2. Enter the details correctly as per your Aadhaar card on the KYC online form.
  3. Register using the OTP generated on your mobile.
  4. Apply successfully.
  5. Once the details are verified by UIDAI, the respective KRA approves the KYC application.

What is KYC for dummies? ›

Know Your Client (KYC) is a standard used in the investment and financial services industry to verify customers and know their risk and financial profiles. Three components of KYC include the customer identification program (CIP), customer due diligence (CDD), and enhanced due diligence (EDD).

What is KYC norms for customers? ›

KYC is required to be done once in every two years for high risk customers, once in every eight years for medium risk customers and once in every ten years for low risk customers.

What is the KYC verification rule? ›

KYC requires customers to provide a personal identification profile and KYC ensures investment advisors are aware of their client's risk tolerance and financial position.

What is the new KYC rule? ›

This means that all financial transactions, including in existing schemes, will be restricted. The investor has to redo the KYC process by submitting any of the officially valid documents (OVDs) that includes Aadhaar, Passport and Voter ID card to the nearest branch of the AMC (Asset Management Company) or KRA.

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