A lot of people, including me at some point, wondering why we have to go through a process called KYC. We may encounter it when we want to register or make an account, or if you want to have business to a financial institutions such as banks, credit companies, and loan agencies. In the world of cryptocurrency, KYC is also a standard procedure for verifying an account if you want to start trading on every crypto trading platform, or if you want to receive a free airdrop, or if you want to use a fully functional crypto-wallet. So what's KYC really means? What's the use of it?
KYC, an abbreviation for Know Your Customer/Client, is a guidelines in financial services requires that a financial institutions make an effort to verify the identity, suitability, and risks involved with maintaining a business relationship with their customers or clients. Those institutions will require their proposed clients to provide detailed due diligence information about themselves, thus submitting identification card is necessary to complete the verification process. Those required identification documents must be valid and recognized internationally, such as national identification card, passport and driver's license.
Its purpose.
The policy is widely used around the globe, considering that the banks must comply to the Anti-Money Laundering(AML) to ensure that they are not dealing on any illegal practices such as money laundering, terrorist funding, corruption and fraud. This, if followed thoroughly, would have prevented many cases such as the money laundering happened in RCBC's bank in the Philippines in connection to one of the world's largest cyberheist in which $81 million was stolen from Bangladesh’s central bank in 2016. The money laundered was deposited into 4 different fictitious account then allegedly merged into a single account before being withdrawn and funneled to many casinos in the country.
Imagine the impact of KYC to the safety and security, not just for many financial institutions, but also for millions of their clients around the globe in preventing them to become the victim of a large-scale financial crime such as fraud. It would be quite inconvenient to the clients to some extent; but being secured is, I guess, the top priority when it comes to money.
How does it usually done?
The KYC procedures usually started when they ask for your basic informations such as your name, address, gender, age, birthday, and contact numbers. It may be in a form of printed sheets if you apply for an account personally in their office, or an electronic copy of the form, if you register online. Those basic data were helpful in determining whether an individual applying to them is involved in any crime or not. They will refer this to a list of those individuals that have criminal records.
You will be also asked for photos of you (usually, without reading glass on if you're wearing one). If it's online, you will be asked for a selfie picture or video. After that, copies of your valid identification cards such as national IDs, passport IDs, Driver's license, and in some cases, school IDs.
From that point, your submitted documents will be subjected to some verification process. The bank will quantifies how much of a risk their client appears to be and how likely they are to become involved in corrupt or illegal activity. Once this calculation has been made, the bank can make a theoretical outline of what that client’s account should look like in the near future. Once the expected trajectory of the account is in place, the bank can then consistently monitor the client’s account activity and make sure that nothing appears to be out of place or suspicious.
Cons of doing KYC.
While safety and security are arguably the most important purposes on doing KYC, we can't totally deny the fact that there are still loopholes on doing this policy. These are the usual reasons why many of us are very reluctant on doing KYC, especially if it's online.
Doing KYC is quite burden in terms of cost of conducting one. Many small financial business suffer from having a disproportional heavy expenses. Another, the clients would possibly think that asking their information was an intrusive act. They would think that it is too risky to disclose their private information online and may be used in some illegal ways.
Being asked for a permanent address is sometimes a burden for those are having a nomadic life, such as those people who just recently moved to a city. Therefore, they can't really give any permanent address or proof of billing. And thus, completing the KYC procedure is nearly impossible.
Conclusion.
Doing KYC is vital for ensuring the safety and security of both the financial institutions and the costumers/clients. It will add some barrier against criminal activities on occuring while making business relationship with confidence. The more it is transparent, the more it is assuring to the company and it's client. But it doesn't mean that it's safe against risk.
That's all, thank you for reading.
Lead photo source:
