KYC is commonly known as Know Your Customer in the corporate world. KYC would not only be constrained to Know Your Customer but would largely include counterparties nowadays.
Financial institutions conform to certain standards mandated by regulatory authorities and government to run their business. The same standards on KYC process has been recently been encouraged and highly recommended to other business entities as well such as those involved in supply chain, trading, etc.
Some entities would encourage or even oblige their counterparties to conduct their own due diligence on their customers, suppliers, contractors and employees. Otherwise, a transaction or deal would not be reached.
Evolution of KYC
KYC is no longer limited to customers. It has now has evolved to KYB (Know Your Business) to include identification of the beneficial owners of corporate entities. Know Your Counterparty has recently included suppliers, contractors and employees which can also be known as KYE (Know Your Employee).
The process doesn’t end during signing of the agreement or on customer or employee acceptance but would extend throughout the business relationship. KYC would require continuous monitoring of transactions based on anticipated behavior. This would then lead us to monitoring of transactions – tagged as KYT or Know Your Transactions.
Bottomline is an entity should deal with a legitimate and law-abiding entity. No one would like to be dragged with a customer, vendor or employee who had a history of illicit activity, fraud, money laundering or terrorism.
Relevance today and in the future
Moreover, online fraud and financial crimes had been designed to be sophisticated, rapidly increasing and continuously evolving. If most of your counterparties are on the other side of the world, how would you be able to track them down if they took your money, inventory or any other resources? Worse, if unknowingly your business was assisting them to transfer terrorist, drug money or illicit funds globally. Would you think your business would survive if the competent authorities had known eventually that your business was somehow been part of this?
Entities are now being vigilant as ever as the entire business reputation is at stake. It may even result to hefty fines, bad publicity and license revocation.
Hence, it would the best interest of any business to know who are you dealing with. Do you know the people behind your counterparties?