What is KYC

2/19/2021 8:00:00 AM
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Based on an article by Luigi Wewege

Nobody doubts the fact that it is necessary to know one´s clients. In some areas, like financial advising, this necessity becomes even more important. When we talk about opening offshore bank accounts, knowing the clients is important for many reasons. This is why there is a procedure called “know your customer” or “know your client” often referred to as KYC.

With KYC there is no mystery. It can be seen as a way to strengthen the relation between a client and his adviser. In this article we present some essential points that will help you understand how this procedure works and why it is so important. 

Understanding the KYC process

KYC is designed to understand a client´s needs, goals, and objectives. As part of the process, the broker or financial advisor will get acquainted with the following information: 

  • The client´s identity. 
  • The level of risk the client is comfortable with. 
  • Type of financial knowledge needed in order to satisfy the needs of the client and help him/her to successfully achieve his/her goals. 

KYC is an important part of customer services while it protects the institution that provides such services. In other words, KYC helps the provider to stay away from impostors, or from those who intend to manipulate the services or break the law, which can only result in serious problems for both the client and the provider. 

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What is the purpose of KYC?

The idea behind KYC is to assure that there is enough information to support the client in his path to wealth while complying with the law. In the case of an offshore company, this means making sure that every transaction is carried out according to the corresponding regulations. 

KYC also includes reporting the movements of transactions and investments in general. It requires that:

  • All corresponding taxes are paid. 
  • Information reporting to the corresponding agencies. 
  • Transactions must be legal and must not result in problems for the client nor the provider. 

Think about a KYC process as yet another resource to take advantage of the opportunities to create wealth. Thanks to KYC, the provider will be able to find tailor-made strategies for each client so that he/she can achieve his/her financial goals while complying with regulations. 

How does it work?

The KYC process starts by establishing the client´s identity, Thus, the advisor asks for the client´s documents that are key to proving his/her identity. Once the identity has been confirmed, it is possible to move on to the next step. 

Now it will be time to structure the person´s profile. The first thing is to establish specific goals that the client wishes to achieve. These are some of the usual steps in an asset protection structure: 

  • Establishing an investment account in order to build the capital that will be utilized during the retirement years. 
  • Generating financial reserves to cover the educational costs of the descendants. 
  • Gather the capital to purchase a property and be able to retire in a tax friendly jurisdiction. 

KYC allows for the establishment of specific goals, and it includes the assessment of the client´s approach to risk. This is done in the following way:

  • Identifying the financial resources that the client can invest leaving enough capital to maintain an acceptable lifestyle. 
  • Determine the client´s risk tolerance. 

Thanks to this information, the adviser or broker will be able to recommend the most suitable structures and possibilities. 

Finally, there are regular revisions of the client´s profile. These intend to determine if something has changed or if the structure needs to be revised. For example, if the client has reached the right level of financial stability, it will be possible to enter investments of higher risks. The advisor will allow his client to make such investments after conducting research, thus making sure it is the right option. This can be done thanks to the knowledge that the KYC process provides. 

KYC documents

The key documents at the start of the process are related to the client´s identity. These usually include:

  • Birth certificate. 
  • Driver´s license 
  • Permanent address. 
  • Bank documents or financial documents stating the client´s wealth. 

The process may require other documents that prove the annual income, work status or social security number. The specific range of documents may vary depending on the jurisdiction. 

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In what situations is KYC required?

KYC can be applied to any of the financial settings you can imagine. It can be required for check or savings accounts, term deposits, and other financial structures.

The same applies if you wish to establish an investment account abroad with an international broker. Even working with a realtor may require KYC so that all the involved parties (agent, buyer, and seller) are duly protected. 

Benefits of KYC

Next, we discuss some of the benefits that a proper KYC process can provide:

  • Legalization and documentation of all transactions. 
  • Eliminates the involvement in legal activities like money laundry or bribery. 
  • Protection against cheating attempts or against illegal structures. 
  • Establishing and maintaining the client´s credibility. 
  • Privatization of the information shared between the client and the advisor. 

Don´t be intimidated if your offshore bank or investment firm asks you to provide KYC documents. On the contrary, be grateful because this process will help protect you and your capital in a more secure way.

Offshore vehicles as a way to achieve wealth

Offshore banking and financial vehicles are excellent options for creating wealth. It is vital that the person works with legit and compliant institutions when investing his/her hard-earned assets. Look for those agents and advisors who work under the KYC standards for the sake of their client´s financial wellbeing. 

If you have any questions about KYC, or if you want to open accounts in compliant banks, hire our experts´ services today. We will be delighted to clear your doubts and help you structure your offshore accounts, so that you can move forward towards your financial goals. 

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