The digital era has revolutionised the way we conduct business and transfer funds globally. Discover the vital role of KYC in Singapore and explore how it safeguards against online fraud, identity theft, and money laundering. The evolution of technology and the Internet have made our lives easier and more connected, but this convenience also opens the door to criminal activities.
According to the United Nations (UN), the amount of money laundered globally in any given year ranges between US$ 800 billion to US$ 2 trillion. Money laundering is often used to sustain illegal activities, such as terrorism. Additionally, cybercrime leading to online fraud is predicted to cost merchants up to US$ 206 billion in 2025. Therefore, having the proper regulatory framework is necessary to minimise the possibility of such incidents occurring.
Singapore has long been regarded as one of the most forward-thinking nations regarding tech innovations. It’s often one of the first nations globally to have clear laws and regulations regarding something new, like embracing the cryptocurrency space.
Such a stance is one of the reasons why businesses and investors flock to the Merlion City, as evidenced by Singapore’s assets under management (AUM) that keep increasing. In 2020, its AUM ballooned to S$4.7 trillion, up from S$4 trillion a year ago.
Remember that these laws are implemented to ensure the security of Singapore’s financial institutions, investors, businesses, and the overall economy. By doing so, it keeps its place as a premier financial hub worldwide. All laws are implemented and released by the Money Authority of Singapore (MAS), which plays a supervisory and regulatory role, ensuring that all financial activities in Singapore are legitimate and not for money laundering or terrorism purposes.
One way of ensuring this is by complying with regulations like Notice PSN01 Prevention of Money Laundering and Countering the Financing of Terrorism – Specified Payment Services in 2021, which requires payment service providers to “put in place robust controls to detect and deter the flow of illicit funds through Singapore’s financial system.”
One of these controls is the KYC or Know Your Customer stage.
The Definition of Know Your Customer (KYC)
The KYC process is non-negotiable, meaning it is something that every investor has to go through. As the name implies, KYC refers to a set of processes to prove that the customer exists and that their source of income is legitimate. This is necessary since financial institutions are more vulnerable than ever to illicit criminal activities in today’s global economy.
Consider this: would you ever serve a customer wearing a hoodie and a mask who walks into a physical bank branch? You would be reluctant and insist on seeing their face and particulars. Failure to do so will result in the denial of service or a call to the authorities.
Such an analogy demonstrates the function of KYC. Ultimately, it establishes a level of trust between both the customer and the service provider. It can be said that the KYC process is the first line of defence for service providers against criminal activities.
The Importance and Advantages of KYC
1. Authenticate the customers’ identity
Financial institutions and service providers are created to serve hundreds to millions of customers daily. They are a prime target for cybercriminals, accessing money and other financial instruments for their own gain, like funding their illicit activities by taking over an existing account or creating a new one under disguise. Doing so is easier than ever, especially with the advancements in technology. Therefore, these service providers must remain vigilant by implementing KYC practices.
The KYC process allows you to verify that the customer does exist and plans to put their legitimate earnings in the capital market for an investment goal, for example. The money is not earned through bribery or other illegal activities, such as drug trafficking.
2. Minimise the possibility of misuse
The KYC process is an effort by the service provider to find out everything there is to know about the potential user or investor before they are granted access to enjoy the service offered. This includes running a background check on them, their financial history and owned assets. Essentially, producing a brief that consists of their track record in society. This lets you assess the risk of a potential customer misusing your service, which may have dire consequences for the general public.
Think of it this way, if you are a bank owner, would you let your bank be used as a place where extremist terrorists transfer their funds to execute their plans? Most likely, you would not want to take the chance. Not only will you deal with the relevant authorities, but your reputation, which takes years to build, will be tainted instantly.
3. It builds trust
As mentioned above, KYC is a way to establish trust between the involved parties: the service provider and the customer. The service provider proves to the customer that their business is legal and security of their kept funds and services is a top priority. Meanwhile, the customer proves to the service provider that their source of income and intentions are proper and not for some nefarious means.
Doing so establishes that the business and possibly the region as a whole is secure, which may attract more investors down the line, boosting the economy in the process. Put your customer’s shoes on, and ask yourself, “Would I invest here?”. Surely, you want to invest in a place that complies with the law and has a robust economic landscape.
Requirements of KYC in Singapore and How it is Done
KYC in Singapore is a two-way street, meaning it is not only the investor that must go through it but also the financial services that are incorporated here. To pass the KYC process with flying colours, registered entities must show the following to their KYC service provider:
- Full Name, Identification Proof (such as Identity Card or Passport), Residential Address, Date of Birth and Nationality of each of the Directors, Shareholders, and the ultimate Beneficial Owners of the company.
- A resolution by the company’s certificate of incorporation
- Copy of the company’s Memorandum and Articles Association (M&AA)
- Copy of the company’s business profile
- Copy of the company’s certificate of incorporation.
The following background checks will be conducted on yourself and persons acting on your behalf:
- Source of income or revenue
- Nature and purpose of your accounts, or linked accounts
- Business activities
- Country of origin and residence
The following assessment will also be done:
- If it is easy to contact your existing clients.
- If you or your clients are Politically Exposed Persons (PEPs), like politicians or relatives thereof.
- If you are secretive and is avoiding face to face meetings.
- There are unusual transactions in your bank accounts.
- Your company structure is not normal.
Your service provider can conduct KYC can in two ways: in-person or online. Before the plethora of devices and the Internet became available, investors used to visit the closest branch to open an account and complete the verification process. This means they had to set aside time to travel and bring all the necessary documents to prove their identity and intention for using the service, which may not be the most efficient use of their time.
While this traditional way may still appeal to some segments of the older generation, who have difficulty utilising technology, most users and investors have shifted online.
Investors can upload the necessary documents and take a selfie to prove their existence. Both pictures will be read by optical character recognition (OCR) technology to ensure that what you have typed matches with the photos you have uploaded. Alternatively, the business can schedule a video conferencing interview, where the investor proves their existence and the documents supplemented belong to them. All in all, there is no one size fits all; it depends on each customer’s preference.
Learn more about how this is conducted is done using our Guide to KYC
KYC with Lanturn
Our KYC & AML checks can be divided into two tiers:
- Basic – Information obtained to verify the identity of potential/existing clients, shareholders, and investors.
- Enhanced – This is for higher-risk customers, where a deeper understanding of the target individual/entity’s activities is needed to mitigate associated risks.
To understand the types of documents and information that we will collect to execute the checks, please review our Compliance Services. Due to the nature of our business, we currently do not cater to situations where the potential for money laundering or terrorist funding is low. If you have low-value accounts and they are high-volume, we recommend working with an e-KYC provider instead.
All our services include:
- Collection and verification methods that comply with Data Protection regulations.
- A four-eyes quality check for all documents/information collected.
- Secure digital record-keeping.
We understand that the risk profile of your stakeholders has the potential to change over time. Therefore, if you are subscribed to our “Outsourced Compliance Monitoring & Support” services, we will conduct KYC reviews of your shareholders and investors on a semester (six months) basis.
Contact Lanturn today to ask about our KYC services.
Or read our other guides: How to Start a Business in Singapore for Foreigners or How to Get a License to Start a Crypto Fund in Singapore