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April 24th, 2015

Financial Sector Changes


In an effort to further protect financial institutions, Know Your Customer (KYC) requirements remains a key feature.KYCis the process regulated markets identify clients and ascertain pertinent information before engaging in business with them. This is required for financial institutions and other companies to conform to due diligence and financial regulatory legislation. While the specific details of KYC requirements may differ between jurisdictions and regulatory regimes, organisations are required to understand their customers and clients including identifying the business, source of funds and wealth, purpose of specific transactions, expected nature and level of transactions and countries from which the customers/clients originate. The purpose of KYC guidelines is to assist financial institutions from being used by criminal elements for money laundering activities.

What this means for customers/clients?

It means that more detailed information and more time is now required to open accounts, perform transactions and operate pre-existing accounts. Where KYC requirements are not adhered to, financial institutions would have the right to refuse business or turn away a customer or client.At any time, a financial institution may request additional information to support the customers’ profile (both new and longstanding) and transactions to be effected.

What this means for financial institutions?

Financial institutions are faced with increased regulatory, reputational and operational risks in implementing the guidelines.FATCA, for instance, the potential penalty for non-compliance is significant, whereby a 30% tax penalty is imposable on returns on U.S. investments obtained by financial institutions. As a result significant investments are required to implement information systems and retool resources to adhere to FATCA and AML/CFT requirements along with the potential for increased operating overheads.

How you can assist financial institutions to better serve you?

Customers should take the initiative and make time to personally visit their financial institution(s) at least every three years to ensure KYC is current. You should also pay greater attention to the requirements when opening new accounts and creating customer profiles as well as requests to support the authenticity of the information provided.

Customers should have greater confidence and trust that the information shared and provided would be treated with the strictest level of confidentiality.And with financial institutions adopting new regulations, customers should ensure that the information provided is always up to date and should communicate changes timely to their financial institution.

Such initiatives are expected to reduce financial institutions’ operating overheads and risk mitigation costs. It would provide protection to customers and clients from identity theft and fraud andcontributeto value creation, as resources of financial institutions would be effectively utilized to strengthen expertise and allow them to concentrate on areas of operation with the potential of protecting your investments.