KYC Know Your Customer Rules

KYC Know Your Customer Rules
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All account holders in banks or other financial institutions mandatorily undertake KYC. Have you ever asked what is KYC? Why is KYC required? Why is KYC important and why do banks (or any financial institution) ask for the same? Today, we will be discussing everything on KYC Know Your Customer, so keep reading.

The purpose of this article is to shed a better understanding of KYC. Let me ask you this. How delighted do you feel when someone asks you for your personal information? Do you feel validated? or do you feel bothered? Well, sometimes when the same question is by a friend of yours, I may say, you’d feel delighted, but if it’s from a stranger, it can be daunting. Isn’t it? I am sure that all of you may have faced such a situation at least once. The reason why I asked you all this is because of the topic at hand today. Know Your Customer Rules/Norms.

My Personal story with KYC

When my bank asked me for my personal information for KYC, I was annoyed at first. The reason was that so much of my personal data had to be given to a bank and my mind questioned, would it be safe?. This was only aggravated by the fact that I wasn’t aware of the reason behind this KYC data collection by banks. If you are someone like me, then, this article aims to shed some light on the KYC norms which have become mandatory these days. So, read on my curious reader.

What is KYC full form?

KYC stands for “Know Your Customer” or “Know Your Client”.

What KYC means?

It is a process to get the information on its customers to guarantee that there is no misuse of services provided by the banks. The information can be the customer’s identity, address, or any other required details.

So to the bank, we are their customers. Hence, Banks (including all other financial institutions) are obligated to know their customers’ correct details. The reason why central Banks of all countries mandate KYC is to avoid misappropriation of money and reduce the instance of fraud. Any violations by any bank would be subject to a hefty penalty.

Failure to comply with the KYC norms would certainly lead to a penalty in most cases. Notices may be sent to the respective client, and the bank would be obliged to mention the reason for further action. If the bank finds any identity suspicious then the bank must file a suspicious transaction report to the concerned authority of the Ministry of finance. This will vary depending on the country you reside in but the process will be similar.

Why is KYC Important?

  • KYC is aimed to make it easier for banks and other financial institutions to know and understand their customers.
  • KYC also helps restrict money laundering.
  • It also helps to stop any terrorist financing.
  • It helps banks manage future risks.
KYC Know Your Customer Rules
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What are the KYC documents?

It varies from country to country, in most countries Passports, Country’s Personal Identification Card, Bank statements, Drivers license, or even salary statements are acceptable documents to complete KYC.

In Bahrain, CPR is the Country’s Personal Identification Card. In India, an Aadhar card is the Country’s Personal Identification Card besides PAN if you pay taxes and In the USA, it may include a social security number, etc…

When is KYC (Know your customer) Verification required?

In short, KYC verification is required in the following instances. They are

1. In Banks, while opening an account:

Almost all of us must have experienced this unless we are a minor and our parents are opening our bank account. The KYC requirements for banks are applicable whenever an account is opened. It is a default process to fill the KYC application. In other words, the bank must make sure their clients are genuinely who they claim to be. This helps reduce identity theft and any future frauds.

2. While Taking a Loan:

A loan is generally taken by credit-worthy customers and the banks will not lend a loan without undergoing the proper process of KYC. Thus, in order to safeguard the customer against any misappropriation or misuse, or corruption of any sort, the banks ask for certain valid documents for proof against the client.

3. For Companies or Business Entities:

Usually for business entities that want to expand the business, or merge & acquire another business will require to undergo a mandatory KYC. Even to get the Company Credit report, KYC is a must.

4. For Telecom Services:

To get a new mobile or telephone link, the Mobile or Internet Service Provider companies, will require KYC. This is done to ensure that no other persons get a duplicate SIM card and also to ensure that personal numbers are not misused by any intruders.

Thus Know your customer is an essential application to be filled by all using the services of their bank. The next time you are asked to submit one, do it diligently.

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