Everything You Need To Know About KYC

KYC requirements are standard procedures when dealing with financial transactions and investments all over the globe. Anti-Money Laundering regulations apply to a variety of sectors in Singapore, with the Monetary Authority of Singapore serving as the central intelligence unit. Singapore has been a reputable international financial center since its independence in 1965. A set of laws has been developed by the Accounting and Corporate Regulatory Authority (ACRA) and the Financial Action Task Force (FATF), an international regulating organization. The framework’s goal is to raise professional standards and safeguard the financial system from abuse. As a result, KYC compliance has grown in significance in Singapore’s financial sector.

Let’s go over the specifics of how KYC functions.

What is KYC?

KYC is an abbreviation for “Know Your Customer.” It is a due diligence method used by financial institutions to verify customer identity as well as evaluate and monitor customer risk. Financial institutions can more accurately pinpoint suspicious activity by verifying a customer’s name and intentions when the account is created and then monitoring transaction patterns.

What is the purpose of KYC?

Organizations are required by law to implement this framework, which has become an important part of their commercial activities. The legislation is enforced to avoid criminal activity such as identity theft, money laundering, and terrorism financing. It can also benefit customers by shielding them from possible financial fraud.

Another benefit is that risk management is available. KYC is essential for preventing fraud and other illegal financial activities. KYC assists financial institutions in avoiding being used for money laundering without their awareness. Furthermore, it imposes legal constraints on businesses, which may protect consumers from unfair treatment.

AML and KYC, Are they the same?

The distinction between AML (anti-money laundering) and KYC (Know Your Customer) is that AML refers to the legislative and regulatory framework that financial institutions must adhere to avoid money laundering. The KYC procedure is a critical component of the broader AML framework, requiring organizations to know whom they do business with and verify customer identity.

Singapore KYC Requirements

Singapore’s central bank and financial regulator, the Monetary Authority of Singapore (MAS), has issued guidelines for financial institutions to follow when performing KYC checks on their customers. Banks, financial organizations, credit unions, wallet providers, insurance agencies, and even cryptocurrency exchanges are all affected by the framework. It is critical that these organizations comply with KYC requirements. The three main components of any KYC program are as follows:

1. Program for Customer Identification (CIP)

The program mandates that financial institutions follow the CIP. To accomplish this, organizations request personal information from their clients to verify their identity. The data requirements of entities may vary based on their risk profiles and the targeted industry. Financial institutions build customer profiles not only to meet the requirements of the framework but also to reduce financial risks. Customer analysis can also assist businesses in improving their marketing strategies. The guidelines govern PII and may include data such as: name, birthdate, address, job situation, identification number, annual income, financial references, etc.

2. Customer Due Diligence (CDD)

CDD is a process that requires organizations to thoroughly evaluate risks associated with their client’s financial activity. Financial institutions examine client behavior to detect suspicious activity, such as the nature of their transactions. They use the information to create risk ratings, which may affect future surveillance. Risk ratings can shift based on a customer’s character. This adaptability enables businesses to perform customer due diligence more efficiently and effectively.

3. Constant surveillance

This component requires financial institutions to update information on a regular basis and monitor transactions for suspicious activity. The frequency of monitoring is determined by the customer’s risk rating. As a result, it is critical to regularly re-evaluate risk levels and implement a dynamic risk management strategy.

Inability to provide KYC

Banks can refuse to open an account or terminate an existing relationship with any company if the minimal KYC requirements are not met. However, certain categories of customers are given some leeway if they cannot provide the required documentation now of account opening.

In conclusion, as a business owner, you must carefully select your corporate service providers to ensure that your firm follows all applicable regulations. Working with a reputable and trustworthy business services provider can help ensure that your incorporation process goes as easily as possible. If you find difficulties in establishing your company in Singapore, contact Oakwood at  +65 9761 3656 to learn more about our services. Our team is always available to show you around and address any questions you may have.