Financial crime is still a serious issue in France, even with the various measures currently taken to improve transaction security and prevent fraud. One of these measures is the Know Your Customer (KYC) process that helps confirm and verify the identity of both new and existing customers. It’s important for business owners to understand KYC – its meaning, main steps, benefits, and more.

What’s in this article?

• What is KYC?
  
• What is the aim of the KYC process?
  
• Is KYC mandatory?
  
• How do you establish a KYC procedure?
  
• What are the advantages of KYC?
  
• What happens if KYC isn’t managed correctly?
  

What is KYC?

Know Your Customer (KYC) is a process used to check the identity, authenticity, and reliability of customers. This can help with evaluating the security of a business relationship. From the initial interaction, customer information is gathered, reviewed, and confirmed and continues to be monitored during the entire business relationship.

KYC checks mainly apply to organizations in the banking and financial sectors, along with professionals in law, insurance, and the sale of valuable items and real estate.

What is the aim of the KYC process?

The KYC process has several aims. These include:

• Avoiding fraud
  
• Following measures that align with Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT)
  
• Confirming customer identities and ensuring safe business relationships
  
• Building trust with existing customers
  
• Maintaining the integrity of financial markets
  

Is KYC mandatory?

Under the French Monetary and Financial Code (Articles L561-1–L561-50), KYC is a legal requirement for individuals or businesses in the financial sector. The financial entities involved include:

• Investment firms
  
• Payment, credit, and electronic money institutions
  
• Banking organisations (including the Banque de France)
  
• Crypto-asset service providers
  

As a payment processor, Stripe must follow KYC checks (see the related documentation for details on Stripe’s KYC requirements).

Mutual insurance companies, pension funds, and social security institutions are also required to comply with KYC rules. The same rule applies to professionals in the legal, insurance, healthcare, and financial investment advisory sectors. Chartered accountants, notaries, auditors, and clerks of commercial courts must also include a customer verification process before providing their services.

When a transaction or a set of related transactions totals €10,000 or more, dealers in precious metals, artwork, antiques, and real estate must follow the same KYC requirements. Likewise, gaming operators and sports agents are required to have a KYC procedure in place.

How do you establish a KYC procedure?

Setting up a compliant KYC process includes:

• Checking customer documents, including the client’s identification, company’s registration papers, beneficiaries, origins of the client’s funds, types of business activity, and history of transactions
  
• Gathering official records to assess the customer’s reliability
  
• Assigning a risk rating to the potential customer
  
• Keeping documents from the KYC process in a customer information file
  
• Adding internal controls to continue tracking the customer’s activities over time
  

It’s important to note that checks on politically exposed persons (PEPs) are more thorough.

What are the advantages of KYC?

Putting a KYC process in place offers several benefits for those involved. KYC helps businesses evaluate the risks linked to potential business relationships before providing their products or services. Businesses can choose not to engage with a customer from the start if the KYC process reveals suspicious or concerning information.

KYC also helps protect businesses from tax fraud. For example, a bank can stop a transaction if it finds that the transaction is illegal or linked to suspicious activity.

A properly applied KYC process can also reduce legal and tax issues, protect the business’s reputation, and limit the risk of penalties, fines, and sanctions.

What happens if KYC isn’t managed correctly?

Incorrect or inadequate KYC management can leave a business vulnerable to money laundering, terrorist funding, and bank card fraud. These consequences can lead to heavy fines, in-depth investigations, and limits on the business’s operations for failing to follow regulations. Bad publicity could also turn away legitimate potential customers and hurt profits.

Therefore, it’s important to check your customers’ legal details in order to protect business operations and build trust. Stripe Connect helps you handle capital movement needs by taking care of identity checks and KYC processes – no coding needed.

You can also use the Infogreffe KYC service – a monitoring tool focused on customer information – that provides access to data certified by commercial court clerks.