Know Your Customer/Client – KYC procedures

Upon registration and opening a trading account to a forex broker, one of the most important requirements is to get the broker’s Compliance Department approval.

For your account to be verified and approved, a trader should comply with certain Know You Customer/Client (KYC) standards, which are commonly described as KYC procedures. This is a mandatory process for financial institutions and especially for regulated companies. These processes are used to verify the identity of the client and to classify the trader by assessing his suitability and risk.

Clients and in turn KYC processes can separated into two (2) main categories:

  • Individual Clients
  • Corporate Clients

For individual clients, KYC is straightforward. The documentation required is to identify the client’s identity and proof of residence.

  • For proof of identity a valid (not expired) passport, national identity card or a driving license may be required.
  • For proof of residence, a utility bill (water, electricity, etc) or a credit/debit card statement or bank statement may be required to be issued within a specified period depending on the regulator’s instructions. This period is usually three (3) to six (6) months depending on the regulator.

Other documents may also be accepted (e.g. voter’s card, birth certificate, etc) always referring to the regulator’s general compliance guidelines.

For corporate clients the KYC process is an important measure to mitigate financial risks and to ensure that a financial institution complies with specific regulations like Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws.
In general, the following documentation is commonly requested from a broker’s Compliance Department:

  • Certificate of Incorporation or Registration (or equivalent).
  • Memorandum and Articles of Association (or equivalent).
  • Business License, since in some jurisdictions the operations and business activities of a company need to be further clarified.
  • Certificate of Incumbency or additional supported company’s financial information.
  • Certificate of Directors and Secretaries.
  • Certificate of Shareholders and Beneficial Owners (UBO).

The specific KYC requirements for corporate clients can vary depending on the nature of the business, its ownership structure and the jurisdiction in which it operates.

The main goal for KYC is to protect both a financial firm and its clients from any possible illegal activities such as Money Laundering or Terrorist Financing. The main structure for KYC processes is set up from a regulator’s compliance. Brokers can adjust these processes accordingly following of course the regulator’s main rules.

Once a trading account is approved and verified from a forex broker’s compliance department, then traders can fund their account(s) and start trading. For more details in regards on which payment methods can be used to fund a trading account, you can check this article:  Forex brokers – Payment methods – Deposits and withdrawals.

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