Know Your Client (KYC)

Know Your Client (KYC) is a Risk Management function mandated by law for companies in the Financial Services Industry. This is a requirement to establish the identity and the most suitable investments for a Client.

In the U.S and other countries, the legal framework commonly known as Know Your Client has been established in law for companies and their Front Office employees in the Financial Services Industry. Companies are required to follow the legal framework which is a Risk Management function and has two objectives. The first objective is to establish the identity of a Client and the source of funds. The second objective is to determine the most suitable investments for the Client. The requirement for a Financial Institution to establish the legitimacy of a Client’s identity is to combat serious financial crimes such as Money Laundering, Fraud and the financing of Terrorist Organisations.

Further, KYC will also help to prevent crimes such as Credit Card Fraud and Identify Theft. A Financial Institution must document and establish the most suitable Risk Profile for a Client. The factors determining the correct profile will be the Client’s level of knowledge and experience in investments, their age and financial position. There must be an effort to understand a Client’s investment goals, how to achieve these goals, and to prevent the Client holding positions in unsuitable investments. In closing, non-compliance with the Laws surrounding KYC can incur heavy penalties.