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What is KYC?

Contributed by Luigi Wewege At Caye International Bank
15 February, 2021


No one would dispute the fact that it makes sense to know your customers. In some areas, such as finance, the need becomes more critical. When you're talking about establishing offshore banking accounts, including investment accounts, the need becomes more apparent. That is why several securities protocols combine to form what's known as KYC or Know Your Customer.

There's nothing mysterious about KYC. It can be viewed as a way to employ common logic and support the development of rapport between the customer and financial service provider. Here are some of the essentials that will help you see how this works and why it matters.

Understanding the Basic Idea of KYC

Know Your Customer is designed to fully understand the financial client's needs, aims, and goals. As part of the process, the investment broker, financial manager, or another type of financial service provider becomes familiar with quite a few basics. These include:

  • The identity of the customer
  • The amount of risk the customer is willing to assume
  • The type of financial knowledge and advice needed to best support the customer's goals

KYC does have a strong customer support focus. At the same time, it also protects the institution or organization providing the financial services.

Simply put, KYC helps the provider avoid getting involved with imposters or those attempting to manipulate the provider's services to circumvent legal requirements engage in activities that could harm the provider and the customer.

What's the Purpose of KYC?

The reasoning behind KYC is to ensure there is sufficient data to fully support the customer in the effort to build wealth while remaining squarely within the limits of the law. In the case of offshore institutions, that means ensuring every transaction is conducted in full compliance with the laws that apply within the jurisdiction.

It also means tracking the movement of those investments and other transactions so that:

  • Applicable taxes are paid
  • Financial data is reported to the appropriate agencies
  • Transactions are legal and pose no issues for the customer or provider

Think of KYC as one more resource that makes it possible to take advantage of offshore opportunities to build wealth. With the use of KYC, the provider looks for strategies that you move toward your financial goals while ensuring compliance with current laws.

How Does KYC Work?

The Know Your Customer effort begins by firmly establishing the identity of the client. This is typically done by requesting, receiving, reviewing, and confirming key documents related to that identity. Once the identity is established, the KYC process can move on to the next step.

With the customer's identity confirmed, it is now possible to begin structuring a customer profile that considers what the client hopes to accomplish. This starts with pinpointing specific goals that the customer wishes to pursue. Some popular examples include:

  • Establish an investment account designed to build wealth for use during the retirement years gradually
  • Build financial reserves to cover the costs of college educations for offspring
  • Accumulate capital to purchase property for retirement at an offshore location

Along with identifying specific goals, the KYC process involves assessing the risk tolerance of the customer. This is done by:

  • Identifying the financial resources the customer can initially allocate while retaining enough resources to live a reasonable quality of life
  • Determining the customer's comfort level as it relates to risk

Compiling this information makes it easier for a broker to make helpful recommendations to the customer.

Lastly, there are periodic reviews of the customer profile. Reviews ascertain if anything has changed and if any adjustments are needed. For example, the customer may have reached a financial security level where it's feasible to include more investment options that carry higher levels of risk. If so, the provider can allow for this when researching and recommending future investment opportunities.

What Sort of Documentation is Associated with a KYC Effort?

The key documents associated with the beginnings of KYC have to do with establishing the customer's identity. These can include:

  • Birth certificate
  • Driver's license
  • Permanent address documentation
  • Bank or investment documents related to net worth

Other factors such as confirmation of annual income, employment status, and documentation such as Social Security numbers may also be required. The specific range of documents may vary slightly depending on the jurisdiction where the customer is attempting to establish financial accounts.

In What Type of Financial Settings Would KYC Apply?

KYC as a practice can apply in just about any offshore financial setting that one can imagine. Establishing checking, savings, or time deposit accounts with an offshore bank would certainly mean employing Know Your Customer measures.

The same would be true with any attempt to establish an offshore investment account with an international brokerage. Even working with an offshore real estate professional would involve KYC elements that ultimately protect the buyer, seller, and agent.

Benefits of KYC Compliance to Keep in Mind

Here are a few key benefits that result from utilizing KYC:

  • Legalizes and properly documents all monetary transactions
  • Eliminates involvement in illegal activities like money laundering, fraud, or bribery
  • Protection from scamming attempts and illegitimate schemes
  • Establishes and maintains customer credibility
  • Privatizes data shared with the financial professional or provider

Don't be intimidated or frustrated if the offshore bank or investment firm you wish to do business with is KYC compliant. Instead, be happy that they take protecting you and your resources so seriously.

Using Offshore Vehicles to Build Wealth

Offshore banking or investing are excellent vehicles for building wealth for use now or later. It's essential to work with compliant and legitimate institutions and businesses when investing your hard-earned finances. Look for one that utilizes guidelines such as Know Your Customer to protect their customers' financial well-being.

Do you have more questions about KYC, or would you like to open accounts with a fully compliant institution? Contact the professional services team at Caye International Bank today. We are happy to answer all of your questions and structure your offshore accounts in ways that help you move forward with your financial goals.




 


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