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KYC procedures: Client identity checks

The Know You Customer procedure is one of the measures put in place as a result of European directives. It is mandatory for banks and electronic money institutions such as Treezor.

Payment supervision and responsibilities of payment service providers

A licensed electronic money institution offers the possibility to store money, but also to carry out online operations and transactions, such as payments and transfers to a bank account. Its contribution is essential to the ease and speed with which these operations can be carried out on a daily basis, especially as the electronic money institution is subject to important rules in terms of transaction security.

Existing European regulations on payments

Since the directive of 26 October 2005, the fight against money laundering and terrorist financing has concerned payment service providers. All of the proposals were taken up and then repealed by the 4th anti-money laundering directive, known as directive 2015/849. They are currently being transposed in the countries of the European Union. Other directives have completed the legislative arsenal for payment service providers, such as the Payment Services Directive (PSD2), currently being transposed in Europe. Finally, note the date of 16 September 2009, ratifying the Electronic Money Directive (2009/110/EC, known as DME2), whose transposition in France was completed on 29 January 2013.

The KYC procedure

The KYC (Know You Customer) procedure consists of verifying the identity of customers and ensuring that customers are in compliance with applicable anti-bribery laws. This verification also covers the integrity and probity of the customer in the context of the fight against money laundering and the financing of terrorism, but also in the context of the fight against financial tax fraud and the prevention of identity theft. The electronic money institution must therefore collect and analyse several data, hence the request to customers to issue several types of documents. These documents include for a natural person the copy of a valid identity document and proof of residence of less than 3 months, and for a legal person the Kbis extract of less than 3 months, the copy of the articles of association, the identity document of the legal representative, etc.

Thresholds for the application of the KYC

An electronic money institution must apply the KYC procedures, when a transaction exceeds €250 or when the sum of transactions exceeds the threshold of €2,500 of purchases of services or goods over the calendar year. Similarly, if the level of payments into the customer’s bank account reaches more than €1,000, the external payment service provider must carry out an accurate verification of the user’s identity. Below this level, the risk is deemed to be lower, which does not lead to the systematic opening of a KYC procedure.

The PEP Check

Payment service providers are also required to check lists of politically exposed persons or persons on sanctions lists. EU regulations are currently undergoing major changes on anti-money laundering and anti-terrorist financing issues. What the European authorities are seeking above all, through the implementation of such legislation for regulated payment actors, is increased vigilance of financial flows and better customer identification.