Just why you have to prove that you are you.
If you’ve ever tried opening an account on a major crypto exchange, or at a brick-and-mortar bank in most countries, you went through it. Providing ID, getting a photo taken, showing a utility bill, it’s the same across the globe. Then there’s the pain of trying to do all this if you move, and have to wait for a utility bill, or see if a rental agreement is enough (often not). It’s called Know Your Customer, or KYC, and it’s an ever-tightening set of rules. So why do we have to deal with it?
The root of the problem
Most people won’t come face-to-face with financial crime on a daily basis, but banks can. It’s a risk for them, every day, potentially with every transaction. And when banking transactions started to become more intricate with electronic, then computerized processing, the banks and U.S. government saw a need to increase security starting from 1970. The September 11, 2001 attacks and 2008 financial crash pointed to needs for even tighter arrangements. These are not options: every bank, every recognized financial institution, has to have KYC policies in place and has to follow them. Despite this, financial crime is still a trillion-dollar business.
The current solution
The framework for KYC that has evolved since the Banking Secrets Act of 1970 is essentially the same worldwide, and it boils down to three elements. These are the customer identification program (CIP), customer due diligence (CDD) and enhanced due diligence (EDD). We’ll look at each of these in turn.
Customer Identification Program (CIP)
A financial institution needs to collect at least four pieces of identifying information about the client. These are:
• name,
• date of birth,
• address, and
• identification number.
These pieces of information cannot just come from a form that the client fills in. The party that needs the KYC done needs to understand the sources of this information, and they have to be official or corporate, depending on the information. That’s why they want to see a government-issued ID, etc.
Besides knowing who you are, many institutions will want to know who you are not. They will check government sanction and terrorism lists, and make sure that you are not a politically exposed person (PEP). If any of those flags are raised, then Enhanced Due Diligence is required.
Customer Due Diligence (CDD)
Once the financial institution has completed the preliminary KYC steps, CDD kicks in. In this stage, the firm classifies all of the information collected previously and examines ongoing transactions. At this point, not only is the client under observation, but the other entities in its financial relationship are also taken into account. Also, changes in patterns are scrutinized.
Enhanced Due Diligence (EDD)
Customers whose information or transaction behavior raise questions will go through Enhanced Due Diligence. EDD is necessary in order to better understand and clarify the behavior or data. For example, someone trying to open who comes from a country on the FATF black or gray lists and is trying to open an account can expect to come under EDD.
KYC practices and the lists that inform them are changing all the time. They can especially be applied to accounts that were previously cleared. After all, those interested in committing financial crime have one trillion reasons to stay ahead of the regulators.
Argomenti
