The Purposes, Benefits and Importance Of Know Your Client Policy to Financial and Investment Related Companies
Know Your Client is a policy that is usually being implemented by financial institutions for purposes of obtaining important information about their clients. Basically, a KYC policy is required to ensure that financial institutions will only deal with clients who have legitimate businesses and resources. Apart from the fact that these institutions need to maintain their good reputation to the public, they are highly regulated by the central bank which has been mandated to ensure that financial institutions should not at any point, become channels to launder money from criminal offenses. However, is the KYC policy only required to be implemented by financial institutions? The answer to this question is no. Companies like consultancy companies which work closely with investors and advise the latter on corporate tax planning, and offer trust services are also required to impose KYC policy. Gambling companies, whether land-based or online are also required to enforce a KYC policy.
The proper implementation of KYC policy will certainly depend on the companies’ employees who directly interact and close important transactions with the clients. Thus, employees should have sufficient training and knowledge about the KYC policy. Otherwise, companies will be at a very high risk of accepting clients who are involved in money laundering, terrorism , kidnapping and other high crimes.
Purposes of KYC policy
1. To ensure that only legitimate clients are accepted.
ensuring that only legitimate
2. To ensure that clients are not engaged in illegal activities by requiring the clients to present independent and reliable documentation
3. To prevent or detect illegal activities.
Benefits of Efficient KYC policy
1. Companies will be able to maintain an untarnished reputation in the industry. They need to have a very good track record in order to attract good clients. When we say good track record it does not only mean excellent record in terms of profits, assets or liquidity. Their records should also show that they have not been at one point become agents or venues for the perpetration of illegal activities.
2. If a company has a strong KYC policy, then this means that it has not suffered any operational losses since the funds in establishing and implementing the policies are fully utilized. This also indicates that the company has a strong management and efficient internal system.
Companies that are required to implement and enforce KYC policies should ensure that their policies are strong and efficient in order to detect and prevent illegal transactions and activities. In view of the above discussed purposes and benefits of a KYC policy, it is concluded that a KYC policy is very important to the business operations, financial reputation and profitability of companies that are required to observe the foregoing policy.
