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What is KYC and Why is it Important?

What is KYC and Why is it Important?

PlusMarkets Analysis21/04/2021

KYC stands for Know-Your-Client or Know-Your-Customer. As the name suggests, KYC is a process that requires financial institutions to get to know everything about their client’s identity and financial position.  

The term represents an industry standard in the finance sector, which guarantees that investment advisors collect detailed information about their clients’ risk tolerance, financial position, investment knowledge, and others. KYC is designed to protect both the clients and the investors.  

What is KYC exactly? 

KYC compliance requires you to verify your customers and identify the beneficial owners, as well as their risk and financial profiles. These procedures go hand in hand with the AML (Anti Money Laundering) policies set out by governments globally. In other words, as a financial services provider, you play a critical role in ensuring that your clients are not engaged in money laundering or any other criminal activities.  

As part of the KYC process, customers are required to provide detailed due diligence in order to conduct business with financial institutions. Due diligence is the exercise of care that a reasonable business is expected to take before entering into any agreement with another party. It is essentially a comprehensive appraisal of a business or an individual. Due diligence involves examining all documents, financial statements or positions, a declaration of the source of funds, a risk analysis, and many more. 

All investment and financial services institutions are obligated to employ the KYC practices, including banks, insurers, creditors, brokers, and others. 

Why is KYC necessary? 

KYC enables all the participants of the contract to audit each other. The objective of the process is to confirm the accuracy of the information given. If you’re verifying a company, you would need documents such as incorporation papers, taxes, and others. On the other hand, in the case of individuals, you would want documents such as proof of identity, lease agreements or title deeds, and others. 

All financial services institutions are obliged to subject their onboarding customers through the KYC process. In the case of brokers, they will typically require the following documents: 

  • National ID or passport to verify the client’s identity 
  • Date and place of birth  
  • A recent utility bill to confirm the registered residential address 
  • Contact information such as phone number and email  
  • Sample signature 
  • Financial information to verify the source of funds 

The Bottom Line 

KYC standards exist to protect all parties. Businesses require their clients to submit their financial information so as to gauge any risk associated with that client relationship. Clients aren’t compelled to perform KYC as it is implied that if a business is registered, it is regulated by some governmental authority. 

Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.26% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Plusmarkets.eu is a domain operated by UR TRADE FIX Ltd, a Cyprus Investment Firm (CIF) authorized and supervised by the Cyprus Securities and Exchange Commission (CySEC) with CIF Licence number 282/15 and Company registration number HE336677.

Deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

Legal disclaimer: The material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instruments. UR Trade Fix Ltd accepts no responsibility for any use that may be made of these comments and for any consequences resulting in it. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. The analysis does not involve any specific investment objectives, financial situation and needs of any specific person who may receive it. Past performance does not constitute a reliable indicator of future results and future forecasts do not constitute a reliable indicator of future performance.

It has not been prepared in accordance with legal requirements designed to promote the independence of research, and as such it is considered to be marketing communication. Although we are not specifically constrained from dealing ahead of the publication of our research, we do not seek to take advantage of it before we provide it to our clients. We aim to establish, maintain and operate effective organizational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. We operate a policy of independence, which requires our employees to act in our clients’ best interests when providing our services. Please read full RISK DISCLOSURE NOTICE

Aviso de riesgos: Operar en los mercados financieros conlleva riesgos. El valor de su inversión podría incrementarse o reducirse y podría perder todo el capital invertido. Opere con responsabilidad. los CFDs son instrumentos complejos y cuentan con un alto riesgo de perder dinero de forma rápida por el apalancamiento. 79.06% de las cuentas de inversores minoristas pierden dinero al invertir en CFDs con este proveedor. Deberías considerar si entiendes cómo funcionan los CFDs y si puedes permitirte el riesgo de perder tu dinero. Por favor, lee nuestro Aviso de Riesgos para más detalles.

Regional Restrictions: For more information on where the Company provides its services, click here

Aviso de riesgos: los CFDs son instrumentos complejos y cuentan con un alto riesgo de perder dinero de forma rápida por el apalancamiento. 79.06% de las cuentas de inversores minoristas pierden dinero al invertir en CFDs con este proveedor . Deberías considerar si entiendes cómo funcionan los CFDs y si puedes permitirte el riesgo de perder tu dinero.
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