All banks must keep legitimate identity documents/information for their customers at all times, according to the Central Bank of the UAE's regulations. This allows banks to better know and understand their customers and their financial transactions, allowing them to better serve them and manage risks. Our study further gives a clear idea about the major difference between KYC and Customer Due Diligence.
Know Your Customer (KYC) is an abbreviated version of Know Your Customer (KYC). It is essentially a key function that aids in the assessment of your clients' risk-bearing capacity as well as legal compliance with anti-money laundering legislation. The majority of KYC Compliance best practices concentrate upon knowing your customers' identities, the risks they pose, and their overall financial activities.
As a business owner, you must have a thorough understanding of your customers. If you're a financial institution or a DNFBP (designated non-financial company or profession), you could risk sanctions, reputational damage, and fines if you work with terrorists or money launderers on the job.
KYC is a critical control mechanism that protects your company from losses and fraudulent activities that can occur as a result of unauthorized transactions or cash. A KYC is a systematic procedure followed by any financial institution or corporate firm.
The steps in this methodical procedure are as follows:
- Establishing the customer's identification.
- Recognizing the true purpose of a customer's actions.
- The ultimate goal is to determine whether or not the source of the customer's finances is both lawful and legitimate.
- Assess the risks associated with a certain client or all customers in order to keep track of their behaviors.
- Real estate agents and brokers; precious metals and gemstone dealers
KYC stands for "Know Your Customer" or "Know Your Client" in some cases. KYC (Know Your Customer) is the process of identifying and validating a client's identification when they open an account and on a regular basis thereafter. In other words, banks must verify that their customers are who they say they are. If a client fails to meet minimal KYC criteria, banks may refuse to open an account or terminate a business relationship. Bank-defined KYC procedures cover all of the steps necessary to verify that their clients are real, identify risks, and keep track of them. These client onboarding procedures aid in the detection and prevention of money laundering, terrorism financing, and other forms of illicit corruption. ID card verification, face verification, document verification (such as utility bills as evidence of address), and biometric verification are all part of the KYC procedure. To prevent fraud, banks must adhere to KYC and anti-money laundering requirements. The banks are responsible for KYC compliance. If you don't cooperate, you could face serious consequences.
The only thing that matters to any financial institution in determining whether or not the potential client can be trusted. Customer Due Diligence is a crucial component that efficiently controls your risks and protects your business from terrorists, politically exposed people (PEPs), and criminals who may offer a high-risk quotient.
Customer due diligence is divided into three levels, which are further described below:
- Simplified Due Diligence (SDD) refers to a circumstance in which the overall risk of terrorist funding or money laundering is low, and no additional client due diligence is necessary. The best illustration of SDD is low-value accounts.
- Basic Customer Due Diligence entails gathering information on all possible customers in order to verify their identity and analyze the total risk connected with that customer.
- Enhanced Due Diligence (EDD) is linked to clients who may be high-risk. It's all about acquiring additional information on your high-risk customers, validating and assessing the information, and mitigating the risks that come with it.
Here are a few things you may take to improve the effectiveness of your due diligence program.
- Determine the location and identity of possible consumers, and take the time to learn about their basic business operations.
- Finding a legal document that proves your potential customer's name and address can be simple.
- Identify a potential customer's risk category and specify what type of customer they are while authenticating them, and then save their information digitally.
- Beyond basic consumer due diligence, it's critical to do a series of tests to see if there's an opportunity for extended due diligence. Because existing consumers may convert into high-risk profile clients over time, this could be an ongoing process. To avoid potentially troublesome circumstances, it's a good idea to undertake periodic due diligence studies on all existing customers.
The following is a list of considerations to keep in mind while determining whether or not additional due diligence is required (EDD):
- The customer's occupation
- The customer's location
- Transactions of various kinds
- Payment method to be expected
- Expected patterns in terms of transaction types, frequency of commerce, and transaction value.
KYC For Corporate Accounts
Corporate accounts, like individual accounts, require KYC, identification, monitoring, and due diligence. The procedure for business account KYC is nearly identical to that for individual accounts. The demands, on the other hand, are quite different. For business accounts, the volume of transactions grows in tandem with the amount per transaction, and various other risk variables are typically heightened, necessitating the use of extra procedures. As a result, these procedures are known as Know Your Business procedures (KYB). Every jurisdiction has its own set of requirements for KYB. There are, however, four standard steps that you can take.
Laws and regulations of the banking sector in the UAE are considerably strict. Dhanguard provides assistance to its clients by meeting their specific needs with respect to the services needed for banking purposes such as the opening of corporate accounts, applying for loans, and others. Our team of experts can offer assistance in several needs. If you are looking for any banking-related services, connect with us, we will gladly assist you.