In short, the shortened KYC for “Know Your Customer” means “Know Your Customer“. In this way, an entity with financial transactions, by receiving a series of customer information, insures itself against the user’s legal problems and possible follow-up.
The law is bilateral and protects both parties to the transaction. With this information, investor advisers or currency exchanges will provide better customer service depending on the client’s situation and also protect the counterparty from the risk of illegal services such as money laundering.
KYC is a moral obligation for everyone in the securities industry when opening and maintaining an account. Two laws were passed in July 2012. These rules are designed to protect the broker/dealer and customer so that the relationship between the two is fair.
The following are governed by KYC:
- Collecting and analyzing essential information such as identity documents (which are subject to U.S. laws and regulations)
Called “Customer Identification Program” or CIP)
- Matching a person’s identity with political parties (having a specific political office, also called PEP)
- Determine the amount of customer risk for terrorism, money laundering or theft of personal information
- Creating a framework for customer financial behavior
- Tracking customer transactions against malicious behavior as well as storing information about the customers the client creates.