What is KYC in banking?

In the past few decades, financial crime has been on the rise. Especially since the emergence of the internet, not every online user has been honest regarding his/her identity. Money laundering and other types of fraud have had a strong impact on many financial institutions.

That is why KYC is now a significant factor in the fight against this type of illegal activities. Before getting into more details, let’s start by explaining what exactly KYC is and how it is used in the banking industry.

So what is KYC in banking?

“What is KYC in banking?” is the big question and we are here to answer it! KYC is short for “Know Your Customer,” and it is a process that banks use to verify the identity of their customers. This helps to prevent fraud and money laundering. In order to complete the KYC process, you will need to provide some basic information about yourself, such as your name, address, and date of birth. You may also be asked to provide documentation such as a driver’s license or passport.

The KYC process is important for both banks and customers. It helps to protect the bank from fraudsters, and it also helps to protect you, the customer, from identity theft. So, if you’re a bank it’s just good business practice! It’s also the law. In many countries, such as Romania and other European nations, banks are required by law to complete the KYC process for all of their customers.

How did it start?

Now that you have a better understanding of what is KYC in banking, you might ask “how did it all begin?” Well, in the light of the Financial Action Task Force’s (FATF) standards on anti-money laundering (AML) and combating money laundering (CFT), the Reserve Bank of India established the KYC norms.

The Prevention of Money Laundering Act (PMLA) regulates the financial sector and requires banks, money exchanges, financial institutions, and intermediaries to comply with stringent KYC/AML standards.

KYC refresh frequency

The purpose of KYC is to be completed at the time of establishing a new account as well as on an ongoing basis. It’s possible that additional information will be required from existing clients, based on the management of the account.

It happens when there are changes to the account, or at fixed periodic refresh cycles, depending on the customer’s risk classification. Customers may also be sanctioned if they do not provide fresh KYC for new account opening in accordance with the most recent applicable KYC standards.

Refusing to abide by the KYC norms

Banks have the right to refuse to open an account or terminate a current account if consumers do not fulfill the necessary KYC standards. However, for certain categories of customers who are unable to provide the document at the time of account creation, there is leeway.

So there you have it! We hope we answered all your questions regarding what is KYC in banking. It’s basically a process that helps to protect both banks and customers from fraud and identity theft. If you represent a bank, it’s a good business practice to complete the KYC process for all your customers. If you’re a customer, it’s good to know that the KYC process is in place to help protect you. If you require more information about efficient KYC solutions in banking, contact Qoobiss anytime!