What is KYC? Benefits, Purposes, and How It Works


In the financial world, KYC or Know Your Customer is an aspect that cannot be ignored. With the advancement of technology, understanding KYC has become increasingly important to ensure the security and reliability of financial transactions. This article will delve deeper into KYC, including its benefits, purposes, and how it works. Let's take a closer look.

What is KYC?

Know Your Customer (KYC) is the process of verifying a customer's identity carried out by financial institutions or businesses. The main purpose of KYC is to collect complete and accurate information about customers to prevent illegal financial activities such as money laundering and terrorism financing.

Benefits of KYC

The implementation of KYC technology by banks or financial institutions brings several significant benefits. Here are five main benefits related to KYC that need to be understood:

  1. Banks can perform deeper and more intensive customer identification.
  2. Helps banks better understand the nature of customer transactions.
  3. Assesses the risk of money laundering from customers to monitor their transaction activities.
  4. Provides protection to customers by preventing fraud and losses from unusual or illegal transactions.
  5. Speeds up and reduces the cost of the customer identity verification process.

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Purpose of KYC

The purpose of Know Your Customer (KYC) is to ensure that financial institutions or businesses conducting transactions with customers can identify and understand the customer's identity. KYC aims to:

  • Financial Security: Protecting the financial sector from abuse risks through clear customer identification.
  • Legal Compliance: Conducting the KYC process ensures compliance with applicable regulations and laws in the financial sector.
  • Anti-Money Laundering (AML): KYC helps prevent money laundering practices by identifying and tracking suspicious financial activities.
  • Adhering to Financial Regulations: KYC is a requirement set by many financial authorities and regulators as part of efforts to maintain the integrity of the financial system.

Is KYC Mandatory?

Yes, KYC is considered mandatory in many jurisdictions and financial sectors. Strict regulations require businesses and financial institutions to conduct the KYC process to ensure compliance with anti-money laundering and terrorism prevention rules.

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When is KYC Conducted?

KYC is usually conducted when a new customer registers, before performing certain financial transactions, and periodically to update customer information.

How to Implement KYC

The implementation of Know Your Customer (KYC) involves customer registration, identity verification, transaction monitoring, and risk assessment. This process requires data updates, employee training, and the application of technology to improve efficiency. Collaboration with external parties and adherence to policies and regulations are key to maintaining the security and compliance of financial transactions.

How KYC Works

To better explain the concept of KYC in the technology-based financial services industry, here are the details of how it operates:

  1. Users upload identity documents to the platform provided by the financial institution.
  2. Arrange direct meetings via video call with representatives from the relevant financial service provider.
  3. Conduct a video call with representatives of the financial service provider to perform the verification process.
  4. Evaluate various financial aspects of the user related to the usage of financial technology products or services, including monthly income size and transaction history.

The Legal Basis of KYC

KYC is a technological program utilized by financial institutions and regulated by various legal statutes. Some legal sources that serve as references for KYC include:

  1. Law of the Republic of Indonesia No. 8 of 2010 concerning the Prevention and Eradication of Money Laundering Crimes.
  2. Minister of Finance Regulation No. 30/PMK.010/2010 concerning the Implementation of Customer Due Diligence Principles for Non-Bank Financial Institutions.
  3. POJK No. 12-POJK.01-2017 regarding the Implementation of the AML/CFT Program in the Financial Services Sector.

With a deep understanding of KYC, stakeholders in the financial industry are expected to optimize measures to protect against money laundering risks and other illegal financial activities. 

For more information or questions, feel free to contact your financial service provider. Financial security begins with all of us, and KYC is a crucial step in maintaining the integrity of the global financial system.

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