Eldon Broady

What is KYC and Why is it Required?

KYC, or Know Your Customer, laws aren't just something that financial institutions have to worry about. Any business that works with banks who have to comply with KYC (which is every bank) needs to take on some of those burdens as well or the bank won't work with them. That being said, the reasoning behind KYC are pretty sound, so most businesses practice compliance with these laws anyway. So what is KYC and why is it required?

What is KYC and KYB?

Know Your Customer is implemented in order to make sure customers are real. With KYC compliance, a business will verify a customer's identity, make sure they're not on any kind of watch lists, and assess the amount of risk a customer might pose. This is to prevent money laundering, corruption, and various other crimes. KYB is essentially the same idea but it's Know Your Business verification instead. In Know Your Business verification, companies must go through the same process for suppliers and other companies they work with. The Patriot Act was enacted to enforce these laws. To comply businesses must follow CIP and CID regulations.

What is CIP?

The CIP process is the Customer Identification Process. This process is where a bank asks a customer or business for identifying information, such as a driver's license for individual customers, articles of incorporation for businesses. Of course there are other documents for KYC or Know Your Business verification, but the bank is required to have at least one or more forms of identification in order to do business with the individual or entity.

What is CDD?

CDD is the Customer Due Diligence for Know Your Customer and Know Your Business verification. There aren't any standards put into place for how an organization should conduct due diligence, but they must have a process in place for attempting to predict the types of transactions a user or business might make and the level of risk these transactions pose.

Following Know Your Customer and Know Your Business Verification

Organizations should implement CIP standards and make sure they have a procedure for CDD in order to align with Know Your Customer and Know Your Business verification. Luckily, there are solutions out there to help implement those processes smoothly.

Author Resource:-

Eldon Broady writes about identity verification and business verification service. You can find his thoughts at ID verification app blog. Click here for more information on id verification API.