All the regulatory authorities from different countries have made it very important for their banks to ensure that they should know all the customers they are dealing with. Adequate due diligence procedure is placed for both new and existing customers in order to stop money laundering and mitigate reputational, legal and other risks. For this, central banks have applied “Know Your Customer (KYC)” norms for all the banks operating in the country.
The KYC guidelines include a proper customer acceptance policy, customer identification program, extensive due diligence procedures and monitor all the transactions including suspicious ones.
Key steps involved in implementing KYC by a bank
It should monitor transactions and records of the customers continuously and take prompt action whenever required.
Proper KYC standards help banks to protect their reputation and reduce their legal, operational and other risk exposures.
The KYC Standards are not only applicable to banks but also for other financial institutions including the non-banking financial institutions which deal with the customers. In India, KYC is mandatory for all the customers to invest in mutual funds.