Know Your Client (KYC)

By
rjonesx
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What is ‘Know Your Client – KYC’

The Know Your Client form is a standard form in the investment industry that ensures investment advisors know detailed information about their clients’ risk tolerance, investment knowledge and financial position.

Explaining ‘Know Your Client – KYC’

The Know Your Client (KYC) rule is an ethical requirement for those in the securities industry who are dealing with customers during the opening and maintaining of accounts. There are two rules which were implemented in July 2012 that cover this topic together: Financial Industry Regulatory Authority (FINRA) Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability). These rules are in place to protect both the broker-dealer and the customer and so that brokers and firms deal fairly with clients.

Suitability Rule

As found in the FINRA Rules of Fair Practices, Rule 2111 goes in tandem with the KYC rule and covers the topic of making recommendations. The suitability Rule 2111 notes that a broker-dealer must have reasonable grounds when making a recommendation that it is suitable for a customer based on the client’s financial situation and needs. This responsibility means that the broker-dealer has done a complete review of the current facts and profile of the customer including the customer’s other securities before making any purchase, sale or exchange of a security.

Establishing a Customer Profile

Investment advisors and firms are responsible for knowing each customer’s financial situation by exploring and gathering the client’s age, other investments, tax status, financial needs, investment experience, investment time horizon, liquidity needs and risk tolerance. The SEC requires that a new customer provide detailed financial information that includes name, date of birth, address, employment status, annual income, net worth, investment objectives and identification numbers before opening an account.

Know Your Client (kyc) FAQ

What are the three 3 components of KYC?

Creating and running an effective KYC program requires the following elements: Customer Identification Program (CIP) How do you know someone is who they say they are? Customer Due Diligence. Ongoing Monitoring.

What are the KYC requirements?

Selfie. Proof of Identity. – Identification document can be one of these: ID card, passport or driving license. – Document should include full name, date of birth and your picture. Proof of Address.

What are the key client attributes in KYC process?

The Company framed its KYC policy with the following four key elements: (i) Customer Acceptance Policy; (ii) Customer Identification Procedures; (iii) Monitoring of Transactions/ On-going Due Diligence; and (iv) Risk Management.

What is KYC check?

KYC or KYC check is the mandatory process in which the identity of the client is verified when opening an account and periodically over time. In other words, banks must ensure that their clients are really who they claim to be.

How does KYC process work?

KYC stands for “Know Your Customer”. In this process, banks get information on the identity and address of the customers. It ensures the proper use of banks’ services. The KYC procedure is to be completed by the banks while opening accounts and also periodically updated.

What are the pillars of KYC policy?

The Company framed its KYC policy with the following four key elements: (i) Customer Acceptance Policy; (ii) Customer Identification Procedures; (iii) Monitoring of Transactions/ On-going Due Diligence; and (iv) Risk Management.

Is KYC mandatory for banks?

The RBI norms mandates banks, digital payment companies or any kind of financial institutions to complete their customers KYC process before giving them complete access to all services. KYC is for precaution against illegal activities like money laundering, bribery or corruption.

Further Reading

  • Know your customer-or not – heinonline.org [PDF]
  • What do your customers really know? Bank managers and compliance cost perceptions – ideas.repec.org [PDF]
  • Preventing Money Laundering or Obstructing Business? – academic.oup.com [PDF]
  • The identity challenge in finance: from analogue identity to digitized identification to digital KYC utilities – link.springer.com [PDF]
  • Financial regulations and price inconsistencies across Bitcoin markets – www.sciencedirect.com [PDF]
  • Strengthening the role of lawyers and other professional advisers in addressing economic and financial crimes in Indonesia – www.emerald.com [PDF]
  • Promoting financial inclusion for inclusive growth in Africa – www.africaportal.org [PDF]
  • The emergence of RegTech 2.0: From know your customer to know your data – papers.ssrn.com [PDF]

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