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Have you ever wondered why people trust banks referred by friends or family, and without having experience and transaction at all, they still manage to secure an account without any doubts?
You input every information asked, provide all requirements and tick everything on the list in opening up a savings account, and more than anything else, you put your own money. It is all because of the KYC policy introduced way back in 2002 by the Reserve Bank of India, and this policy ensures safety. And it boosts the credibility of banks for every banker.
With a complete understanding of customers and their financial transactions, banks can dismiss profiles with suspicious profiles. Because of the KYC policy, they can easily monitor and access the risk of their clients.
What is KYC?
The main reason why KYC serves is to have guidelines that prevent banks from being used by criminal intents, whether unintentional or intentional, such as money laundering activities. It is also one of the proven ways to understand customers and their financial dealings in a way that banks can provide excellent services.
Today, KYC is a compulsory requirement for any institution holding money, specifically banks, lenders, insurance providers, and all financial and monetary institutions.
By law, these companies are required to know their customers, gather information for identification, monitor transactions, and assess their risk factors. KYC is a process-driven to collect data and ensures their customers are who they claim to be, meet the requirements to eligible use their financial services, and that they don’t engage criminal activities with their services.
The main goal is to determine which clients are most prone to carrying out financial crimes and who do not need thorough auditing. These are to prevent fraud, tax evasions, financing terrorism, and any other financial crimes.
What Happens If A Company Fails to Comply To KYC?
The Anti-Money Laundering (AML) standard and legislations exist both to national and global levels. Know Your Customer (KYC) procedures are a vital function to know the risk and legal requirements to adhere to the Anti-Money Laundering laws. So, what happens if a company fails to comply with the KYC policy?
1. Once a local or international regulator suspects a bank or any financial institutions for any malicious intent, they could investigate non-compliance and money laundering or other matters. Proven non-compliances tremendously affect the bank’s reputation.
Clients would pull out their services because nobody wants to do business with an institution suspected of funding terrorism and embracing money laundering for their gains. It doesn’t take long for a company to state bankruptcy when its losing sales, financial backers, and suppliers.
2. A lot of customers, including you, expect high standards of integrity and good moral behaviour from their banks and financial institutions. Banks failing to comply with KYC results in penalties, including fines by FCA. And on a more serious occasion, possible criminal prosecution.
AML and KYC policies are a bit harder to have compared to previous years. Some traditional banks are paying escalating fines due to failure to comply. Today non-compliance fines grow approximately $3.5m a year.
3. Fines are not only the problem. Modern bankers have been asking clients to visit banks to finish more KYC process, and visit branches face to face with their passports and utility bills. The younger generation begins to turn back and lose interest in their banks. It poses a severe challenge to the traditional bank and must respond to these demands or lose customers.
So, if you’re ever asked by your bank or other financial institutions more documents to show your credibility, do not be surprised and follow accordingly. These are all to comply with the KYC policy to improve your banking experience.