KYC (Know your client)
Table of content
What is KYC? What is the purpose and Objectives of KYC?
What is Customer Due Diligence (CDD)?
Why does bank demand to follow CDD procedures?
Procedure of completing CDD?
What is KYC? What is the purpose and Objectives of KYC?
o KYC stands for Know your customers.
o Know Your Customer (KYC) is the process of a business identifying and verifying the identity of its clients.
o The objective of KYC/AML guidelines is to prevent banks from being used by criminal elements for money laundering or terrorist financing activities.
o It also enables banks to understand their customers and financial dealings which in turn help them to manage their risks.
What is Customer Due Diligence (CDD)?
CDD (Customer Due Diligence) is the process of collecting relevant information about the customer and evaluated for potential risk for the organization or terrorist financing and money laundering activities.
CDD is a necessary for Know your customers (KYC).
Process of completing KYC might be different in the world however the aim behind obtaining or completing KYC is same to identify customer and their activities. There are 3 category followed
- SDD ( Standard Due Diligence)
- CDD (Customer Due Diligence)
- EDD (Enhanced Due Diligence)
Why does bank demand to follow CDD procedures?
All banks must apply CDD checks to verify their client’s identities strictly to ensure that all of their clients are confide and actual.
The aim is to ensure that none of the clients are involved in
financial crimes.
To follow the procedures of regulatory.
It also help banks from Reputations loss , regulatory fines , operational loss , license revoke etc.
Procedure of completing CDD
Step1: Data collection: Collecting basic information of the clients
Based on Customer profile individually:
All Customers due diligence start with by collecting basic information about the client. There may not be same across globe however majority of them as below-
- Full Name
- Address
- Contact Number and Email address
- DOB , Place
- Gender
- Nationality
- Marital status
- Government-issued id
- Occupation
- Signature
- Tax identification number or PAN number
- Parental consent form ( in case individual is a minor)
Based on Customer profile Entity:
- Name of corporation
- Type of corporation
- Date of incorporation
- Place of incorporation
- Board resolution on authorized signatories
- Certificate of incumbency
- Constitution
- AOA
- Certificate of incorporation
- Annual report
- Directors
- Shareholders
- Senior Management
- UBO
Based on Customer profile Trust:
- Settlor’s details
- Trustee’s details
- Beneficiaries’ details
- Relationship between settlor, trustee, protector and beneficiary
- UBO information
Based on Customer wealth profile:
- Source of wealth
- Source of Funds
- Annual income
Step 2 : Verification of collection of data
After data collection second step is to verify the information collected from the customer to ensure accuracy.
Most of the documents information can be verified through government body
e.g ID, Passport, e-bills, mobile bill.
Step 3: Name Screening or Negative search screening
Screening takes part and applied for all types of clients and entities or individuals specially who deals with financial institutions.
This is to ensure or identify whether client is involved in -
- Politically Exposed Persons ( PEPs)
- Terrorist financing
- Sanctioned
- Reported in news
- Criminal activity
To ensure that financial institutions uses the following systems to verify the above-
- Lexis Nexis
- Bridger insight
- World check
- Norkom
When all of the above parameters are perfect than financial institutions analyst takes decision to complete the entity or individuals profile.
They might move to the EDD (Enhanced Due Diligence ) in case of any mismatch or
alert found while performing the CDD.
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