KYC in banking stands for Know Your Customer. It's the process banks use to identify and verify the identity of their customers and obtain their address information.
Purpose of KYC
The primary purpose of KYC is to prevent banks' services from being misused for illegal activities such as:
- Money laundering
- Terrorist financing
- Fraud
Key Aspects of KYC
KYC involves several key aspects:
- Customer Identification: Verifying the customer's identity using reliable documents.
- Customer Due Diligence: Assessing the risks associated with the customer.
- Ongoing Monitoring: Regularly reviewing customer information and transactions.
How KYC Works
The KYC procedure is carried out by banks at two crucial stages:
- Account Opening: When a new customer opens an account, the bank collects information and documents to verify their identity and address.
- Periodic Updates: Banks periodically update customer information to ensure it remains current and accurate. This is done to maintain the integrity of the KYC process.
Examples of KYC Documents
Common documents used for KYC include:
- Government-issued photo ID (e.g., passport, driver's license)
- Proof of address (e.g., utility bill, bank statement)
Benefits of KYC
- Reduces Financial Crime: Helps prevent money laundering and other illicit activities.
- Protects Banks: Minimizes the risk of banks being used for illegal purposes.
- Enhances Financial Stability: Contributes to the overall stability of the financial system.
| Feature | Description |
|---|---|
| Definition | Know Your Customer - process to verify customer identity and address. |
| Purpose | Prevent misuse of bank services for illegal activities. |
| Implementation | At account opening and periodically thereafter. |
| Documents | Government ID, proof of address. |
| Benefits | Reduces financial crime, protects banks, enhances financial stability. |
