Know your customer (KYC) is a process mainly used by banks and other financial institutions to verify the identity of their customers. The objective of KYC API guidelines is to prevent criminal elements from using banks for their money laundering activities. KYC also enables banks to understand the customers and their financial dealings better. The knowledge helps the financial institutions serve their customers better and prudently manage the customers’ financial dealings. Click here for more information about KYC API process.

Importance of KYC

KYC helps identify and verify a customer’s identity by evaluating reliable, independent sources of information, data or documents. Banks must take steps to verify their customers’ identities.

For individual customers, banks obtain the official identification of a customer, recent photograph and address. Banks also require joint and mandate holders to provide similar information.

For non-individual customers, such as businesses and other institutions, banks obtain identification data to verify the legal status of an entity, authorized signatories, operating address and beneficial owners.

Other information that banks require is the nature of employment or business the customer does or plans to undertake and the purpose of opening the account at that bank.

Purpose of KYC

Reserve Bank of India explains the KYC guidelines in the context of recommendations by the Financial Action Task Force on the standards of anti-money laundering and combating financial terrorism. The Prevention of Money Laundering Act compels banks, other financial institutions and intermediaries to follow at least the minimum standards of KYC and AML.

KYC Refresh

KYC information is required when opening a bank account or at refresh time. Banks can ask current customers for additional information based on:

•     Activities of an account
•     Changes to an account
•     Fixed periodic refresh cycles according to the risk categorization of a customer

A bank also requests existing customers to provide fresh KYC information when opening a new account. The purpose is to enforce adherence to the latest KYC API standards.

Contact Person in a Bank

A bank customer needs to communicate with a bank staffer or a relationship manager who will begin the account opening process. Banks have a right to reject an application for account opening when someone does not provide KYC. They can also discontinue a relationship with a customer for failing to meet the basic KYC requirements. However, there is provision for flexibility for clients who cannot submit the required documents when opening an account.

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