What is KYC in banking

Know your customer principle

abbreviated to KYC principle; Part of the customer-related security measures of a company to combat money laundering, terrorist financing (ยง 1 II GwG) and other criminal acts. The principle standardized in Sections 10 et seq. Of the GwG states that banks and other obliged entities within the meaning of Section 2 of the GwG must disclose their (future) contractual partners and, if they exist, other "beneficial owners" (Section 3) before a business relationship is established (Section 1 IV ) or the execution of a transaction (Section 1 V), ie to establish and verify their identity by collecting certain information (data) (Section 1 III, Section 11 GwG). In addition, knowledge of the origin of funds and the processing of transactions are particularly important. Information from customers should, as far as possible or necessary, be subjected to a plausibility check. Account research or screening measures (monitoring systems), through correspondingly stored parameters (indicators) in the systems, are also part of a comprehensive KYC. In addition, customer data should be compared with special lists of known suspicious persons. Through the use of credit agencies (e.g. Schufa), further information about the correctness of the information from (potential) customers can be obtained and thus clues for necessary measures to prevent illegal activity can be obtained. Culpable violations (in the case of institutions within the meaning of the KWG) can be punished by fines from the Federal Financial Supervisory Authority (BaFin) in accordance with Section 56 I No. 16 ff., II, III GwG. Natural persons acting or responsible on the part of the bank are threatened with a penalty for aiding and abetting money laundering (Section 261 in conjunction with Section 27 StGB). A violation of the KYC principle can also lead to the revocation of a license (due to a lack of reliability on the part of management) (Section 35 II KWG).