KYC information and how to provide your bank with what it needs

Very few companies enjoy providing Know Your Customer (KYC) information to their bank, particularly when it has to be done more than once.

Why do financial institutions insist on having the same questionnaires filled out again and again? Why do they require you to resend document packages they have already received? Why do they need all this information anyway?

In this quick overview, we will explain why banks act the way they do, what type of information they are looking for, and why. Why are banks so keen on KYC requirements? Banks are under strict and comprehensive legal requirements to collect KYC information to make sure that criminals do not misuse the financial system for
money laundering and other financial crime related activities.

Banks want to protect their reputation at all costs. History has shown that being involved in money laundering has a detrimental effect on a bank’s reputation. Most banks and bankers are decent people and do not want to be part of laundering money that comes from terrible crimes such as extortion, drug trafficking, illegal arms trading and human trafficking.

What basic information do banks collect as part of KYC?

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1. Identify the company
2. Understand the business model and purpose of the relationship
3. Understand who controls and owns the company
4. The intended use of the bank’s products and services
5. Tax questions (FATCA/CRS)

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1. Identify the business

Who is the company?
Where are they registered?
Which industry do they operate in?

The bank needs to be sure they are conducting business with the right counterparty, just like you as a person identify yourself with a passport or a national identity card. The bank will ask the company for all the information needed to make that identification.

This is often the easy part of the process, since it is mostly about documenting the company’s incorporation. However, it can be a time-consuming process to collect all the information, and you might think, “Why don’t the banks just pull the information themselves from the public register?”

The banks typically do not do that since they want companies to deliver the latest, most up-to-date information and confirm its validity.

2. Understand the business model

Why does the business exist?
What is the business doing?
How are they operating?

An essential part of KYC is understanding a customer’s business model. It helps banks to understand the risk of your business model and assess if the use of their products and services is valid.

Banks are obligated to assess all customers’ risks and adjust their own risk setup according to the customer risk. This to ensure banks are using the needed resources to identify potential money laundering and terrorist financing risks.

Often companies do not use enough time to explain their business model to the banks. (Maybe you think your business model is obvious.) However, you are the most reliable source of a clear and correct description of your business model; the bank shouldn’t have to guess. With a little effort, you will avoid many ongoing questions from the bank regarding your use of the bank’s services and products.

3. Who controls and owns the business?

Who benefits the most from business ownership? (Who are the UBOs?) Who can make the decisions in the company? (Who controls the company — who has voting rights / special rights like the ability to appoint the Board of Directors?)

There is an increasing (regulatory) request for transparency when it comes to the ownership and control structure of companies. The goal is that Ultimate Beneficial Owners (the individuals who actually own or control the company, UBOs) should not be able to hide behind complex company structures and shell companies.

It can be difficult for companies to have complete oversight of owners and voting rights, since they also have to consider indirect ownership and control. But they should always have an updated ownership and control structure illustration. Banks will often ask for an illustration to visualize and better understand the structure.

Once this is in place comes another cumbersome part of the process, which is collecting relevant information and documentation from the various Company Officers, being the UBOs from the ownership and control structure, along with the board and executive members of the company. If you’re located in the EU, you are required to proactively share information about changes in your Beneficial Owners (UBOs). You are also legally responsible for the correctness of the information you share with the banks.

Many companies do not have updated ownership and control information ready. This can be a delaying factor when it comes to the KYC process.

4. What is the purpose of the future relationship?

● Which products and services do you need and why?
● How will you use the products and services of the bank?
● What is the reason you want a relationship with the bank?
● Will you transfer funds abroad?
● What will be the size of the transactions?
● How often will you make the transactions?
● What market will you transfer to/from and why?

Banks are required to understand the customer’s use of their products and services and need to make sure that it aligns with the company’s business model. In addition to that requirement, they must monitor their business to make sure that the customer is using the products as expected. This is to identify unusual use of the products, such as transactions that are not according to expected behavior.

To perform this monitoring, banks need relevant information that can be used to monitor deviations from the expected behavior. If you do not deliver realistic information about your
intended use of the bank’s products, you will experience that banks often come back and ask specific questions about transactions. They do that since they did not expect these transactions and need to understand the reason for them.

When companies do not give realistic information about their expectations, that makes future cooperation more time-consuming for both parties. The better information you deliver regarding
your business model and your expected use of the bank, the fewer follow-up questions you will receive.

5. Tax information (FATCA & CRS)

As a part of the KYC process, you are often asked to deliver tax information. The request is mainly related to FATCA (US tax regulation) and CRS (EU’s Common Reporting Standard) and ensures that banks can share relevant tax information across countries.

You can download this post as a PDF here.