Knowing your customer, or KYC, is really that. Making sure that you know who you are doing business with, collecting identification and verifying its validity.
AML stands for anti-money laundering and describes laws that prevent criminal financing. They involve a whole range of things, including knowing your customer. AML typically includes activities such as
KYC is only part of AML, but they are usually used interchangeably so for the purposes of this post, we will group them as AML/KYC.
Generally speaking, it is your responsibility to avoid doing business with criminal enterprises. Period.
Financial institutions are usually required by government agencies to proactively participate in these practices. FINRA, holds authority over the financial sector and has several programs with accessible databases to verify ID of entities. For example Broker Check utilizes FINRA’s Central Repository Registration to research the background and experience of financial brokers, advisors and firms.
Collect and verify ID and registration of any entity involved as well as any individuals. Research the entity to make sure that the information provided is consistent. This is an important part of preventing money laundering, but it is just one small part of successful anti money laundering practice.
In the context of the regulated financial sector, any time your company is aiding an entity move and/or storing funds in any sort of financial instrument, you will need to do AML/KYC It is good practice (and required by most government agencies) to do your due diligence to understand client business models and how they will be using any funds that your business is directly or indirectly overseeing.
Think of it this way.
You WILL be audited.
It is not a question of IF, but WHEN. You want to make sure that you keep record of all information that can reasonably prove that you do not turn a blind eye to your customer’s business practices.
You and your business should always be on the lookout for foul play.
You are to be held responsible – at least in part – for any of your customer’s criminal behavior.
It depends on the regulation that your business adheres to. I will list a few of the practices, 1 is least thorough and 9 is most thorough.
AML/KYC requires a variety of steps, policies and procedures to be in place that allow the collection of verifiable information that goes beyond good faith.
It is the common goal and responsibility of all businesses in the financial space to maintain good processes to avoid money laundering and fraud.
Not complying with these practices or worse, not complying with agency regulations can land businesses in serious trouble.
AET participates in AML/KYC according to FINRA regulations and we enable our clients to be compliant by utilizing our AML/KYC infrastructure.