Know Your Customer/Client (KYC) is a term used in financial services and trading platforms to indicate compliance with the law. The phrase “Know Your Customer” (KYC) is essential terminology in the foreign exchange market and other areas of the financial sector. For a long time, the compliance teams’ ability to check the identities of new clients and consumers before allowing them to use the company’s service has protected the business from financial crime. Its purpose is to verify the legitimacy of the customer’s funding source and the customer’s identity.
It mandates that businesses involved in the buying, selling, or exchanging of financial products (such as forex) record the customer’s first and last name, physical address, date of birth, and, in certain cases, other, discretionary parts of KYC verification.
How does KYC work with brokers?
Any new customer that a brokerage firm takes on must go through a Know Your Customer procedure. Failing to provide the necessary identification information might cause problems with making deposits and withdrawals. A variety of documentation may be required by various brokerages, and these needs may vary depending on the firm. When it comes to know-your-customer (KYC) policies, some brokers are more lenient than others. For instance, after the MIFID II legislation was implemented, CySEC-regulated brokers have been much more stringent with Know Your Customer requirements.
In contrast, offshore brokerages are often more relaxed in their standards. When a broker takes information from the customer, it is obliged to save this information and make it confidential. So how does the process work when it comes to registering a Forex broker? For example, imagine that you want to register with FxPro, which is one of the leading Forex brokers in the industry. The first thing you do is open an account. In order to open an account, you need to indicate several types of information, including your email, phone number, and address.
You should also verify your email, if there is any problem, the company will contact you by email. In addition to that, after verifying your email, it’s important to verify your identity. How does this work? When you open a Forex account, you should indicate your ID data. Plus, if you want to make a transaction, deposit, or withdraw money, you should indicate your card information, like CVV, card number, and expiration date. Having a user-friendly client area is essential for making the procedure as smooth as possible; thus brokerages should prioritize the above-mentioned things. Because of the regulatory requirements for performing these actions, it is crucial that you, as a brokerage, provide your customers with a reliable forex verification service.
Forex companies do Simplified, Basic, or Enhanced KYC for their clients, depending on the level of service they want to provide and based on the account they want to open. These are often configured to determine a user’s location, occupational classification, transaction type, payment method, and anticipated trading trends.
Why KYC is so important
The securities market is a high-stakes, ever-changing field. It’s always evolving and may be utilized for both money laundering and criminal wealth generation. Insider trading, market manipulation, fraud, as well as money laundering, terrorist funding, and corruption, are all examples of hazards posed by third parties.
Those who launder money often go to great lengths to cover their tracks. Criminals might utilize a variety of techniques to “clean their dirty money”. It might be difficult for specialized compliance teams to detect suspicious behaviour and warning signs.
Since foreign exchange trading is such a large portion of the international financial system, various bodies of law govern forex trading venues across the world. The adoption of Know Your Client (KYC) services and customer due diligence methods is generally required by the rules, but this varies by location and kind of FX platform. Forex firms may avoid dealing with scammers and phoney identities by doing digital ID verification on new signups.
To meet their legal and regulatory responsibilities, brokerage firms must conduct identity verification on all new clients. Both new and current consumers should be asked for information. The broker’s responsibility includes deciding whether the client is a good fit. To ensure the individual is not giving false information about their age, it is important to do an age verification check. There is less of a chance of fraud because of criminals utilizing false, stolen, or fictitious identities if you have to Know Your Customer (KYC) software that provides real-time customer identity verification, user age verification, and trading account document verification. Authentication and identity verification for traders prevents thieves from gaining access to your network.
Know Your Customer (KYC) is crucial and must be taken seriously. Know-your-customer (KYC) procedures may make or break a financial services company. To that end, AML rules seek to standardize, clarify, and regulate the securities trading industry. Verifying a customer’s identification is a crucial weapon in the fight against criminal activity.