Know Your Customer (KYC) compliance is a fundamental item for any Brazilian or foreign organization that carries out the business of raising, intermediation, custody and/or investment of third-party funds in Brazil.
This list includes banks, fintechs, cryptocurrency exchanges, insurance companies, fund managers, among others, that work with third-party money.
With the growing surveillance of identity fraud, money laundering and the financing of crimes and terrorism, exercised by authorities such as the Brazilian Central Bank (BACEN), the Brazilian Securities and Exchange Commission (CVM), the Financial Activities Control Council (COAF), structuring and observing KYC is imperative to not expose the organization, actively or passively, to financial and criminal penalties.
See below 4 important points about KYC:
1. What is Know Your Client (KYC): It is a set of procedures and controls that allow verifying and validating the identity and qualification of clients, origin and destination of their funds, in order to prevent identity fraud, money laundering and financing of crime and terrorism.
2. Who Should Implement KYC? Any organization that carries out the business of raising, intermediation, custody and/or investment of third-party funds, in Brazil or abroad.
This list includes banks, credit unions, fintechs, cryptocurrency exchanges, insurance companies, fund managers, companies, among others, that work with third-party money.
3. What Should KYC Compliance Cover? The requirements of KYC compliance must observe the regulations of each type of business. BACEN, CVM, COAF, in addition to private self regulated entities such as ANBIMA, FEBRABAN, have their own rules.
In general, KYC policies need to include procedures for (i) identification and qualification of customers and their controlling shareholders, (ii) origin of funds from their activities, (iii) due diligence on the origin and destination of resources/assets operated, (iv) keep customer data and documentation updated and (v) procedures in case of verification of potential risk (or occurrence) of non-compliance with KYC policies.
4. Penalties for Non-Compliance with KYC: Brazilian laws and regulations on KYC, including BACEN, CVM, COAF, and others, are quite severe because they may imply co-responsibility with the client for the illegal act.
Violations may occur from a civil standpoint, ranging from public warning, to relevant fines and suspension/discontinuation from continuing to do business, and in the criminal standpoint. With the expansion of activities that deal with third-party funds, the implementation of Know Your Customer (KYC) policies and procedures has become required of a larger list of organizations doing business in Brazil in order to avoid risks of penalties and of reputation.
