To a consumer? Not so much. To a business however, KYC is imperative to a healthy corporation. KYC in essence is identifying who you are truly working with – this includes your business partners and suppliers, not just your customers (as the name suggests). It is form of preventive measure to verify the ‘Ultimate Beneficial Owner’ (or ‘UBO’ for short) and the risks involved with these stakeholders prior to entering a contract or completing a transaction. Commonly performed by banks, financial institutions (FIs) and insurance agencies, there is now a growing popularity amongst other industries to include KYC to their risk management process. The motivations of performing KYC will vary; from protecting the organisation to financial risk and reputational damage or worse, to be embroiled to money laundering and terrorist financing activities. Nonetheless, due to inaccurate public data, a complex and manually laborious process, corporate due diligence is often neglected despite the hefty implications of inaction. A KYC objectively safeguards your organisation from the consequence of entering a partnership or contract with a ‘black sheep’ – or at the very least, alert your business to the potential red flags.
Aside from credit assessment on potential partners or customers with a business credit report, KYC can be indispensable in uncovering subsidiary/ies that might not be doing as well as their parent company or vice versa. This will be vital information in risk management and decision making. Would you be comfortable extending credit to a company whose UBO or parent company are not financially stable?
Your business’s reputation is effectively its identity and the association with a notorious organisation will result in a negative perception of your company. In our unforgiving digital age, it is more than likely that it will be a permanent blemish on your brand. Partnerships with other companies will also be an uphill battle to avoid being associated by extension.
While the laws and guidelines might differ across countries, companies in Singapore are subject to Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements by the relevant authorities. Failure to abide may result in sizable fines, sanctions or other penalties (such as revoking of operating licenses/certifications and even prison time). The good news is that there will be mitigating factors if the company can prove reasonable and adequate prevention efforts were taken i.e., due diligence or KYC checks. KYC policies have been necessary to combat financial crimes, to ensure companies are operating within the legal framework and working with entities doing the same. Before KYC, corruption, money laundering and terrorist financing were extremely prevalent as identifying and verifying stakeholders was a daunting task routinely overlooked.
So how important is KYC for my business?
For a high-involvement, high-investment and heavily-publicised transaction/partnership – very important. While KYC exists to derail and deter financial crimes, the financial and reputational safeguards are valuable perks of performing KYC on stakeholders prior to onboarding. Similar to when an organisation employs a business credit report in credit assessment, most businesses consider the degree of risk and the value of the activity or transaction when deciding on a KYC of an entity. Where it counts, KYC ensures that you make an informed, calculated decision for your business.