KYC - explained
What does the term “Know your customer” mean?
The Act on Measures against Money Laundering and financial terrorism contains a specific chapter on customer awareness. To protect your business, comply with the law, you must ensure that you have sufficient knowledge of your customer. As a result, people talk about KYC (Know Your Customer), which consists of risk assessment and several active measures. The nature and accuracy of these measures are based on what is considered the customer's risk.
What does the law say?
The law says that you may not establish, maintain a business relationship or carry out a transaction if you do not have sufficient knowledge of your customer.?
Neither a business relationship may be established nor transaction performed if there are any suspicions of money laundering och financial terrorism. You must identify the customer and check his or her's identity.?
Therefore, customer knowledge and KYC should be something you have clear routines for and work actively on so that nothing is overlooked.
PEP – Person in a vulnerable political position
You must also ensure whether the person is a so-called PEP (person in a politically exposed position), a known employee, or a close relative of such person. PEP refers to a person who has or has had an important public function in any organization or state, such as politicians, civil servants, judges, senior officers, CEOs, or members of international organizations or state-owned companies.?
When it comes to a person who is in a vulnerable political position, KYC is just as important since a PEP is more likely to be the target of bribery. Also, it is essential to know which family members and employees belong to a PEP.
Not only banks are affected by the law
In Sweden, the law has been updated several times since its enactment in 1993. Today KYC is much more than the typical questions you get at a bank office when depositing money and now includes more companies and areas of activity.?
Today the law covers both individuals and companies that participate in a transaction for money laundering or Financial terrorism. Companies in industries, such as life insurance, credit, deposits, security, currency exchange, and funds, with the potential for large financial transactions and a significant money flow are all included in the law. Also included are authorized accountants, auditing companies, casinos, and gaming companies. The law states that all professional trading in cash sales to values over 5 000 Euro, is covered by the Money Laundering Act. The demands have increased over the years for more and more industries to adapt their operations, and today, good customer knowledge is a must.
Five helpful tips for Know your customer / KYC
To make the law on money laundering understandable concerning KYC, we provide five points that can be good to keep in mind when you conduct the work.
1) Review risks and create clear routines
The key for everything to operate smoothly is preventive work, and all your employees should know what to do in their daily work. You need to assess the risks you may encounter and how to act. You need to know who your customers are and what work they do. Make sure that your customer information is correct and up to date. We recommend you evaluate these routines at least once a year.
2) Know your customer well enough
Sometimes it is enough to ask for identification, and sometimes you may need additional questions. Staying up to date with your long-term customers is equally important. Remember, it is better to be safe than sorry – so if anything feels a bit off – ask about it. Hence, your routines should be adaptable to fit different situations.?
3) EU sanctions and high-risk third country
Some countries outside the EES are identified as high-risk third countries by the European Union. If covered by the Money Laundering Act, you must check whether your customer is established in such a country. You need good knowledge of your customer to know if they are part of a group or an organization subject to EU sanctions.
4) Contact the financial Police force in case of doubt or irregularities
If you have any suspicion of illegality, you must contact the Financial Police immediately. You always have the right to refuse a customer if anything is considered illegal. Be open and transparent about the measures you undertake to comply with the law.?
5) Update and transparency
Rules, laws, and regulations are continuously updated, therefore ensure you always have the latest information. Be transparent in questions regarding KYC, PEP, and make sure your employees know what applies and who they can ask if there are any doubts. Support new employees so they feel confident and secure in all situations.?
Facilitate customer awareness and Know your customer with 365id
The Money Laundering Act and the recommendations for customer knowledge place high demands on companies covered by it. How do you ensure that the routines are easy to understand and complied with by all employees? A simple measure that provides security and flexibility in the work is to use 365id. The user-friendly system will verify ID documents in real-time, store them automatically, and immediately warn if something is wrong.
This simple solution protects companies and employees while saving time and energy and guaranteeing compliance with legal requirements. With technology from 365id, companies meet the requirements in a simple, convenient and safe way.
Want to know more? Contact us through our website below.