The essence of KYC in compliance

FUNGAI CHIMWAMUROMBE AND THEOPHILUS MUBEMI

 

In Zimbabwe, the Know Your Customer (KYC) principle is a crucial component of compliance in the financial sector.

KYC is a risk-based approach that allows for financial institutions to understand their customers’ identity, behaviour, and nature of transactions so as to curb illegal activities such as money laundering which is at its prevalence.

This article scratches into the essence of KYC in compliance from a Zimbabwean perspective.

 

Background

Globally, the financial sector has more often than not, been subjected to and made vulnerable to various risks in so many ways, including money laundering, terrorist financing, and fraud.

In Zimbabwe, the Reserve Bank of Zimbabwe (RBZ) and other regulatory bodies have implemented KYC requirements to mitigate these risks.

The RBZ requires financial institutions to conduct thorough customer due diligence to ensure that they are doing business with legitimate customers on legitimate terms.

Key Components of KYC in Zimbabwe

 

Customer Identification in KYC comes in as primary as it dictates that financial institutions must verify the identity of customers through official documents such as IDs, passports, or driver’s licenses, company registration certificates and all relevant paperwork and or documents that shed light on the client and the nature of business.

This is then followed by Risk Assessment under which financial institutions are mandated to carry out an exhaustive evaluation over the customer’s risk profile based on their activities, transactions, nature of business and background.

Risk assessment can therefore only be said to have been exhaustive after an ongoing monitoring is done on a customer in which continuous monitoring of customer transactions and activities is carried more frequently in order to detect and flag all suspicious behaviour.

A conclusive KYC also comes coupled with a fully enhanced due diligence on high-risk customers, such as Politically Exposed Persons (PEPs) or those from high-risk jurisdictions as this gives an insight on the nature of a customer as well as their behavioural traits.

Record-Keeping in the premise therefore becomes also key in this regard so as complete KYC as it will allow for accurate and up-to-date records of customer information and transactions to which then makes monitoring easy and effective.

 

Benefits of KYC in Compliance

The benefits that come with well executed KYC therefore range from the prevention of money laundering and terrorist Financing KYC when fully implemented and complied with, helps detect, flag and prevent illicit activities including fraud.

KYC also benefits financial institutions by empowering and enabling them to manage risks effectively and ensure compliance with regulatory requirements.

 

Conclusion

In Zimbabwe, KYC is an essential component of compliance in the financial sector.

Financial institutions must prioritize KYC to prevent money laundering, terrorist financing, fraud, and other financial crimes.

By understanding the essence of KYC, financial institutions can effectively manage risks and comply with regulatory requirements.

 

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at [email protected] and WhatsApp 0772 997 889.  Theophilus Mubemi is a Legal Intern, email address is the [email protected], 0717936310

 

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