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KYC is: Definition, Benefits, Legal Basis and Examples of Application

2022-06-21 00:00:00 415
KYC is: Definition, Benefits, Legal Basis and Examples of Application

For all BFI friends, the term KYC may sound foreign to you. For Financial Service Providers such as Banks and Financing Companies such as BFI Finance, KYC activities are mandatory to prevent money laundering by potential debtors. What is full KYC? Here, the BFI Finance team provides complete information for you.

 

Definition of KYC

Know Your Customer or KYC is a financial principle carried out by Financial Service Providers, both Bank and Non-Bank, which aims to identify the identity and activities of the debtor. Recognizing the identity and activities of the debtor, in this case, does not only require information about the name and identity number of the debtor, but includes the type of work, the history of the debtor's financial transactions, and the purpose for which the debtor's financial activities are carried out.

Initially, in Indonesia, the KYC principle has only been carried out by Bank Financial Institutions since 2001, but now the KYC principle has been applied by other Non-Bank Financial Institutions such as Financing Companies, Insurance Companies, Investments, to Online Loans. Long before, the KYC principle was introduced on the recommendation of The Financial Action Task Force (FATF) on Money Laundering during the G-7 Summit in 1989.

In its implementation in Indonesia, through the Minister of Finance Regulation Number 30/PMK.010/2010, each Financial Institution is required to establish a special work unit that is responsible for handling and supervising the implementation of this Know Your Customer principle.

Indonesia also has an independent institution specifically tasked with preventing money laundering, called the PPATK or Center for Financial Transaction Reports and Analysis. In their duties, PPATK has the right to receive financial transaction reports, analyze the financial statement transactions, and forward the results of the analysis to law enforcement agencies if they are proven to have committed a money laundering crime.

KYC Benefits

The application of the KYC principle certainly has many benefits for financial institutions that implement it. Some of them are as follows:

  • Companies can get to know debtors more deeply.
  • Helping companies to understand each debtor's activities that have been recorded in financial transaction data.
  • Assessing anti-money laundering risks that may occur in the debtor's financial activities.
  • Provide protection for debtors from losses arising from any unfair and illegal financial transactions.
  • The process of verifying the debtor's personal data is more efficient in terms of time and low costs.

Purpose of KYC

In addition to the main objective of the KYC principle, which is to prevent the occurrence of money laundering, there are several other objectives for the application of the KYC principle in a bank and non-bank financial institutions, namely:

  • Helping financial institutions to better recognize and understand each debtor.
  • Facilitate Bank Indonesia and the Financial Services Authority in monitoring activities carried out by Financial Institutions.
  • Preventing money laundering and criminal acts of corruption
  • Maximizing the internal control system of financial institutions that apply KYC principles for all financial activities owned by debtors.
  • All information that has been collected from debtors can be used as material for investigations if one day there is a potential for corruption and money laundering.

KYC Real Application

So that you can better understand the role of KYC in work processes within the company, the following is an example of the real application of KYC principles.

  1. Upload a personal identity document such as an ID card on the form provided.
  2. Conduct face-to-face meetings as one of the debtor verification processes attended by financial institutions.
  3. Conduct video calls to ensure the validity of the terms of service submission by the debtor.
  4. Checking several financial aspects related to product or service submissions such as the amount of income per month or the history of financial transactions.

KYC Legal Basis

In the process that involves many parties, of course, the KYC principle has a legal basis so that it can be used as a guide if there are problems that arise between the parties. There are three legal bases for the implementation of this KYC principle, namely:

1. Regulation of the Minister of Finance Number 30/PMK.010/2010 concerning Application of Know Your Customer Principles for Non-Bank Financial Institutions.

This regulation explains:

  • What types of non-bank financial institutions can implement Know Your Customer (KYC) principles.
  • The risk level of the debtor has the lowest to the highest risk in this activity of money laundering and corruption.
  • What information must be obtained by financial institutions from debtors with individual or corporate status?
  • Other provisions are required for non-bank financial institutions in preventing potential criminal acts of corruption and money laundering.

2. Law of the Republic of Indonesia Number 8 of 2010 concerning Prevention and Eradication of the Crime of Money Laundering.

These provisions stipulate:

  • Definition of suspicious financial transactions.
  • Duties and authorities of the Center for Financial Transaction Reports and Analysis (PPATK) as an independent institution to prevent and eradicate money laundering.
  • Sanctions and fines if proven guilty of corruption and money laundering.
  • Other provisions governing the prevention of money laundering and corruption.

3. POJK Number 12/POJK.01/2017 concerning the Implementation of Anti-Money Laundering and Prevention of Terrorism Financing Programs in the Financial Services Sector.

These provisions stipulate:

  • Financial institutions can implement this Know Your Customer (KYC) principle.
  • Definition of Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) by financial institutions to debtors.
  • The division of duties and authorities within the company's organizational structure includes Commissioners, Directors, and other positions in preventing potential criminal acts of money laundering and corruption.
  • Clear policies and procedures must be implemented by financial institutions in an effort to prevent potential criminal acts of money laundering and corruption.
  • Other provisions governing the prevention of money laundering and corruption.

 

This is an explanation of what KYC is and an example of its application in the financial industry. It can be concluded, that KYC is one of the activities that Financial Institutions can carry out to prevent potential money laundering crimes that are dangerous not only for the company but also for the country. I hope this article helps, BFI friends! Find other interesting and useful information about business financing and business tips on the BFI Finance blog!

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