Have you ever wondered why banks and lenders ask so many questions and seem to need to know the story of your life?
Banks, lenders, and other financial institutions or regulated entities are governed to follow certain protocols called KYB (know your business) and KYC (know your customer).
Read on to learn why they have to follow these protocols and what they entail.
What is KYC?
KYC, or know your customer is a way that regulated businesses like banks, real estate agents, lenders, law firms, and other financial institutions verify who they are working with.
The process calls for gathering information from the individual customer to perform checks on them to determine the risk they pose of being involved in financial crimes like money laundering.
This is the reason why it may seem like the business wants your life story during the beginning processes.
Some of the information collected from the customer is their name, identification number, address, phone number, and possibly financial information.
At times, a KYC check will be done on the individual’s background and credit to ensure they have no history of financial crime.
The information provided by the customer is then verified and reviewed.
Banks and other financial institutions often check their customers’ information and monitor transactions of certain amounts to assess the customer for risks of financial crimes.
What is KYB?
Know your business (KYB) is very similar to KYC, except it is done on business entities and requires more information to be collected.
When banks, law firms, lenders, and other regulated businesses decide to work with a business they are required to gather enough information to know:
- The company’s name
- Financial records
- Address
- Beneficial and ultimate beneficial owners
- Background and personal information of those who benefit from transactions
- Industry
- History
- And corporate structure
To get this information, they may ask for the business license or registration, articles of incorporation, IDs for certain individuals, and other documents.
Why they need to know
Performing know your business and know your customer confirms that the business or individual is legitimate and not a risk.
It allows the bank or regulated business to prevent and catch financial criminals to protect themselves and the economy from harm and destruction.
Things like money laundering, counterfeiting, scamming, terrorist funding, and other financial crimes can easily destroy the economy on a global level if not caught.
Since these crimes can be fatal for the economy, many countries will enforce fines and other punishments on businesses that fail to comply with KYC and KYB procedures.
Banks, lenders, and other financial institutions are governed and mandated to ask certain questions and run checks on each individual or business that they open an account for.
They are required to follow the protocols of KYB (know your business) and KYC (know your customer) so that they can help to prevent financial crimes.
If we all did our due diligence, like the financial institutions, we can make the world a safer place to live and do business in.
